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entitled 'Nursing Homes: Complexity of Private Investment Purchases 
Demonstrates Need for CMS to Improve the Usability and Completeness of 
Ownership Data' which was released on October 27, 2010. 

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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

Nursing Homes: 

Complexity of Private Investment Purchases Demonstrates Need for CMS 
to Improve the Usability and Completeness of Ownership Data: 

GAO-10-710: 

GAO Highlights: 

Highlights of GA0-10-710, a report to congressional requesters. 

Why GAO Did This Study: 

Since 2007, attention has been focused on nursing home ownership by 
private investment (PI) firms. Nursing home providers are required to 
disclose parties with an ownership or control interest in order to 
participate in Medicare or Medicaid. CMS, the HHS agency responsible 
for managing these two programs, maintains ownership and chain data in 
its Provider Enrollment, Chain, and Ownership System (PECOS). GAO 
examined (1) the extent of PI nursing home ownership and firms' 
involvement in homes' operations, (2) whether PECOS reflects PI 
ownership, and (3) how HHS and states use ownership data for 
oversight. GAO identified PI ownership using a proprietary database 
and analyzed data from six PI firms about their interest and 
involvement in nursing homes. GAO examined PECOS data for selected PI-
owned nursing home chains and discussed ownership data with officials 
from HHS, CMS, and six states that also collect data. 

What GAO Found: 

GAO found that 1,876 unique nursing homes were acquired by PI firms 
from 1998 through 2008. While some of the acquisitions involved entire 
nursing home chains, which included both the operations and any owned 
real estate, other acquisitions involved only the real estate. 
Sometimes the same nursing homes were acquired more than once. Ten PI 
firms accounted for 89 percent of the 1,876 unique nursing homes 
acquired by PI firms during this period. Of the six PI firms from 
which GAO collected information, those that acquired a chain reported 
being more involved in nursing home operations than those that only 
acquired the real estate. These firms had representatives on the 
nursing home chain's board of directors, but they generally 
characterized their involvement as related to the chain's strategic 
direction rather than day-to-day operations. PI firms that acquired 
real estate only had no representation on the boards of the operating 
companies, but officials at one PI firm observed that some leasing 
arrangements have the potential to affect operations. 

PECOS provided a confusing picture of the complex ownership structures 
and chain affiliations of the six PI-owned nursing home chains GAO 
reviewed. The database did not provide any indication of the hierarchy 
or relationships among the numerous organizational owners listed for 
PI-owned nursing homes. Further, PI ownership was often not readily 
apparent in the data, which could be the result of (1) PI firms not 
being required to be reported because of how they structured their 
acquisitions, (2) provider confusion about the reporting requirements, 
or (3) related entities that were reported but were not easily 
identifiable with the PI firms. Finally, PECOS chain information was 
not straightforward and was sometimes incomplete, making it difficult 
to link all the homes in a chain. Compounding these shortcomings, 
CMS's ability to determine the accuracy and completeness of the 
reported ownership data is limited. 

HHS has made limited use of PECOS ownership data. The only CMS 
division with routine access to PECOS data has been largely focused on 
populating the database and has not developed any standardized reports 
on nursing home ownership that it could share with interested parties. 
Some states collect their own ownership information but it can be 
limited to owners that operate in their state. As a result, tracking 
compliance problems among commonly owned homes or multistate chains 
can be ad hoc. State officials and others expressed interest in 
nationwide ownership data, such as PECOS, to improve nursing home 
oversight. Recognizing the growing interest in PECOS data, CMS has 
established a workgroup to consider how to accommodate the PECOS 
interests of other groups within the agency and is considering whether 
and how to provide access to external parties such as states. The 
implementation of the Patient Protection and Affordable Care Act 
provides CMS with an opportunity to address shortcomings in the 
current PECOS database and to make ownership information available to 
states and consumers in a more intelligible way. 

What GAO Recommends: 

GAO recommends that the Secretary of HHS and CMS Administrator 
consider requiring the reporting of certain information to make 
nursing home ownership structures more understandable and take other 
actions to improve the accuracy and dissemination of these data as HHS 
implements new ownership reporting requirements in the 2010 Patient 
Protection and Affordable Care Act. HHS concurred with all of GAO's 
recommendations. 

View [hyperlink, http://www.gao.gov/products/GA0-10-710] or key 
components. For more information, contact John E. Dicken at (202) 512-
7114 or dickenj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Private Investment Firms Acquired about 1,900 Nursing Homes from 1998 
through 2008, although Some Acquisitions Involved Real Estate Only and 
Not the Operations: 

PECOS Data on PI Ownership and Chain Affiliation Are Hard to Decipher, 
Incomplete, and Difficult for CMS to Verify: 

BHS Has Made Limited Use of Ownership Data, but State Survey Agencies 
and Others Expressed Interest in Nationwide Data to Improve Nursing 
Home Oversight: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Summary of Six PI Firms' Responses about Their Interest 
and Involvement in Nursing Homes: 

Appendix II: Comments from the Department of Health and Human Services: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Sample Sections of the CMS Medicare Enrollment Application: 

Table 2: Top 10 Private Investment (PI) Nursing Home Chain and Real 
Estate Acquirers for Calendar Years 1998 through 2008, Still Owned as 
of December 31, 2008: 

Table 3: Chain Home Office Information Listed in PECOS for Nursing 
Homes in Six PI-Owned Nursing Home Chains: 

Table 4: Summary of Responses of Six of the Top 10 Nursing Home Chain 
and Real Estate Acquirers as of Mid-2009: 

Figures: 

Figure 1: Key Stages in a Leveraged Buyout by a PI Firm: 

Figure 2: Nursing Homes Involved in PI Acquisitions, 1998 through 2008: 

Figure 3: Example of Different PI Firms That Separately Acquired the 
Operations and Real Estate of the Same Nursing Homes: 

Figure 4: Comparison of Organizational Ownership Information Contained 
in State Data from Missouri and in PECOS for One PI-Owned Nursing Home: 

Abbreviations: 

CMS: Centers for Medicare & Medicaid Services: 

GSA: General Services Administration: 

BHS: Department of Health and Human Services: 

OIG: Office of Inspector General: 

PECOS: Provider Enrollment, Chain, and Ownership System: 

PI: private investment: 

SEC: Securities and Exchange Commission: 

SPE: special purpose entity: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

September 30, 2010: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Charles E. Grassley: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Pete Stark: 
Chairman: 
Subcommittee on Health: 
Committee on Ways and Means: 
House of Representatives: 

The nursing home industry has experienced significant restructuring in 
the last two decades, with many of the nation's largest nursing home 
companies—including publicly traded companies that owned hundreds of 
homes—having undergone mergers, bankruptcies, and divestitures. 
Recently, private investment (PI) firm ownership of nursing homes has 
attracted attention. The ownership interest or securities of PI firms 
generally are not publicly traded and their activities are not 
otherwise subject to federal financial disclosure requirements. 
[Footnote 1] Thus, when a PI firm acquires a publicly traded nursing 
home company, essentially taking the nursing home private, the 
company's finances and management become less transparent. In 
addition, PI firms may hold their acquisitions for a short time and 
place large levels of debt on the acquired entity, leading to concerns 
that quality of care may be adversely affected. A 2007 New York Times 
investigation of nursing homes owned by PI firms reported that quality 
of care declined in homes after they were purchased by such
firms.[Footnote 2] Another study, however, did not show a definitive 
link between PI ownership of nursing homes and quality of care and 
called for more work on the issue.[Footnote 3] 

To determine the effect of ownership on nursing home quality of care, 
it is necessary to have complete and accurate ownership information 
that provides a clear understanding of the relationship of each owner 
to the nursing home and any other owners. Since at least the late 
1970s, the Centers for Medicare & Medicaid Services (CMS), within the 
Department of Health and Human Services (BHS), has been required to 
collect ownership information on providers, such as nursing homes, 
participating in the Medicare and Medicaid programs, the largest 
payers of nursing home care in the nation.[Footnote 4] CMS is 
responsible for oversight of providers that participate in these two 
programs. Congressional hearings held in 2007 and 2008 focused in part 
on quality of care at PI-owned homes and CMS's ability to identify 
homes with common ownership. 

You asked us to look at PI ownership of nursing homes, CMS's capacity 
to identify nursing home owners, and the impact of PI ownership on the 
quality of care provided. This report addresses (1) the extent of PI 
ownership of nursing homes and PI firms' involvement in the operations 
of homes they have acquired, (2) whether PI ownership of nursing homes 
is reflected in the ownership information reported to CMS, and (3) how 
nursing home ownership data are used for oversight by BHS and states. 
We plan to examine the impact of PI ownership of nursing homes on the
quality of care in a subsequent report. 

To identify the extent of PI ownership of nursing homes, we examined 
PI acquisitions from 1998 through 2008, primarily using merger and 
acquisition data compiled by Dealogic, a company that offers financial 
analysis products to the investment banking industry. We assessed the 
procedures that Dealogic uses to collect and analyze data and 
determined that the data were sufficiently reliable for our purposes. 
[Footnote 5] We supplemented the Dealogic data with information about 
additional acquisitions that we identified through other sources, 
including press releases from company Web sites, nursing home industry 
publications, and company filings with the Securities and Exchange 
Commission (SEC). Because some homes were sold more than once during 
the 1998 through 2008 period and also because of the way some of the 
PI nursing home acquisitions were structured, we report PI nursing 
home acquisitions in two ways. First, we report the number of unique 
homes PI firms acquired during the period. Second, we identify 10 PI 
firms that owned the most nursing homes as of December 2008. We 
contacted these top 10 firms—which represented almost 90 percent of 
all unique homes acquired by PI firms during the 1998 through 2008 
period—both to confirm the numbers of homes they currently owned and 
to understand the extent of their involvement in the operations of 
these nursing homes. We confirmed the number of nursing homes 
currently owned for 9 of the 10 firms, representing about
78 percent of all unique nursing homes acquired by PI firms during the 
period.[Footnote 6] We also analyzed information that 6 of these 9 PI 
firms provided, representing about 68 percent of unique nursing homes, 
on the extent of their involvement in nursing home operations. 

To identify whether PI ownership of nursing homes is reflected in the 
ownership information collected by CMS, we examined nursing home data 
in CMS's Provider Enrollment, Chain, and Ownership System (PECOS), the 
national database of enrollment information submitted to CMS by 
providers in the Medicare program.[Footnote 7] We obtained and 
analyzed extracts of PECOS data as of August and September 2009, for 
1,003 nursing homes in six PI-owned chains, using identifying 
information provided by PI firms.[Footnote 8, 9] We also interviewed 
officials in CMS's Division of Provider and Supplier Enrollment, 
responsible for PECOS, to learn what ownership information is captured 
by PECOS, how CMS enforces ownership disclosure requirements, and how 
CMS ensures the accuracy of the data. We determined that, for our 
purposes of reviewing ownership information collected by CMS, the 
PECOS data were sufficiently reliable. 

To determine how other BHS components use nursing home ownership data 
and what data states collect to oversee providers, we interviewed the 
following: 

* CMS's Survey and Certification Group, which is responsible for 
oversight of state survey activities and enforcement of nursing home 
quality standards;[Footnote 10] 

* officials from 4 of CMS's 10 regional offices, which assist the 
Survey and Certification Group in its oversight of state survey 
activities, to understand their use of and access to ownership data; 
[Footnote 11] 

* CMS components responsible for other CMS initiatives related to the 
collection of data that could be used to identify nursing home chains; 

* six state survey agencies (California, Illinois, Maryland, Missouri, 
New Jersey, and Texas) that collect nursing home ownership information 
when they license nursing homes to operate in their jurisdictions;
[Footnote 12] and; 

* HHS Office of Inspector General (OIG), which has the authority to 
exclude nursing homes from participating in Medicare, Medicaid, and 
other federal health care programs.[Footnote 13] 

We also reviewed CMS and other federal and state documents and 
relevant federal regulations and statutes. 

We conducted this performance audit from July 2008 through September 
2010 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

Background: 

Over the last decade, nursing home ownership and operating structures 
have continued to evolve, including the development of more complex 
structures and an increase in private investment ownership of nursing 
homes. The federal government plays an important role in funding 
nursing home care and ensuring that residents in the nation's 
approximately 16,000 nursing homes participating in the Medicare or 
Medicaid programs receive appropriate care; collection of nursing home 
ownership information is one part of this effort. 

Nursing Home Ownership Structures: 

Nursing homes must be licensed by the states in which they operate in 
order to participate in Medicare or Medicaid. The entity that is 
licensed to operate the facility is known as the provider. A provider 
can be an independent company that operates one facility or the 
provider can be part of a multiprovider chain organization.[Footnote 
14] Some providers contract with separate entities to manage nursing 
homes. In addition, the provider may or may not own the real estate 
where care is delivered and any associated medical or other equipment. 
Nursing home real estate assets can be separated from nursing home 
operations for a number of reasons, including to limit liability or to 
obtain financing. The ownership and control relationships among these 
various entities can be complex. For example, the provider may own all 
or part of the entity it contracts with to operate the nursing home. 

Providers can be one of three business types—for profit, nonprofit, or 
government. The majority of nursing home providers—about two-thirds—
are for-profit businesses. For-profit nursing home providers include a 
wide range of business ownership types from sole proprietorships to 
large publicly traded corporations. Within the for-profit provider 
type, private investment firms—generally investment firms whose 
ownership interests are not publicly traded on a stock exchange—have 
been acquiring both entire nursing home chains as well as individual 
homes since at least the late 1990s. Restructuring of the nursing home 
industry following bankruptcies among several large nursing home 
chains, as well as increased liability litigation in states such as 
Florida and Texas, which prompted some chains to sell their homes in 
these states, created an opportunity for private investment firms to 
acquire nursing homes that were being sold by these chains. In 
addition, reliable income streams from nursing home ownership made 
investment in the industry attractive for PI firms. 

Private Investment Firms: 
In general, PI firms use a combination of investment capital and 
borrowed capital to acquire companies with the goal of making a profit 
and eventually returning that profit to investors and the firm. In 
contrast to publicly traded firms, PI firms generally are not subject 
to periodic disclosure and other SEC requirements, including public 
reporting of income, assets, and information about company operations 
and leadership.[Footnote 15] Consequently, information on the 
operations of PI firms—including a firm's acquisition and sale of 
companies—is generally not as readily available as that of publicly 
traded firms. PI firm managers say this advantage allows them to make 
business improvements their publicly traded competitors may be less 
willing to make, such as developing investment strategies that are not 
tied to producing profits on a quarter-by-quarter basis.	 

In recent years, attention has been given to a subclass of private 
investment called private equity. One investment strategy undertaken 
by private equity firms is the "leveraged buyout." In a typical 
leveraged buyout, a private equity firm establishes a fund and obtains 
capital commitments from investors. These investors often include 
public and corporate pension plans, endowments and foundations, 
insurance companies, and individuals. The fund's capital is then used 
in combination with borrowed capital to acquire majority or complete 
ownership of a company. However, most of the necessary financing for 
the acquisition comes from this borrowed capital, with the fund's 
capital representing only a small portion of the total acquisition 
cost.[Footnote 16] After attempting to improve the financial 
performance of the company (which can be over a 3- to 5-year period 
but may be longer), the fund sells the company; any profits from the 
sale are returned to the fund and generally distributed to fund 
investors and the private equity firm. (See figure 1.)[Footnote 17] 

Figure 1: Key Stages in a Leveraged Buyout by a PI Firm: 

[Refer to PDF for image: illustration] 

Key stages: 

1) A private equity firm creates a fund that obtains capital 
commitments from investors. 

2) Through its own research or information from intermediaries such as 
investment banks, private equity firm identifies "target" company for 
its buyout fund to acquire. 

3) Private equity firm, on behalf of the buyout fund, obtains a loan 
commitment which is used, along with the fund's capital, to finance 
the acquisition. 

4) After takeover is completed, the buyout fund holds the acquired 
company for 3 to 5 years or longer. During this time, it seeks to 
increase the value of the company, such as through operational, 
capital, and financial improvements, in hope of realizing a profit 
when it sells the company. 

5) The buyout fund "exits" investment by selling the company. Profits 
from the sale, if any, are returned to the fund and generally 
distributed to fund investors and private equity firm. 

Sources: GAO analysis of information provided by private equity firms, 
investment banks, and commercial banks; Art Explosion (images). 

[End of figure] 

Disclosure of Nursing Home Ownership: 

To be eligible for Medicare and Medicaid payments, nursing homes are 
required to submit information on individuals or certain entities, 
such as corporations, that have an ownership or control interest in 
the provider. The Social Security Act requires all Medicare and 
Medicaid nursing homes to disclose information on the identities of 
persons who have an ownership or control interest in the nursing home 
in order to participate in the programs.[Footnote 18] Specifically, 
the act and related regulations define "a person with an ownership or 
control interest" to include a person (including certain entities) who: 

* has a direct or indirect ownership interest of 5 percent or more in 
the nursing home provider; 

* is the owner of a whole or partial interest in any mortgage, deed of 
trust, note, or other obligation secured by the nursing home or any of 
its property or assets, equal to 5 percent or more of the total 
property and assets; 

* is an officer or director of the nursing home, if it is organized as 
a corporation; or; 

* is a partner in the nursing home, if it is organized as a 
partnership. 

In addition, the act specifies that, to the extent determined feasible 
under regulations of the Secretary of BHS, nursing home providers must 
disclose for each person with an ownership or control interest, the 
name of any other provider with respect to which that same person has 
an ownership or control interest. 

The Patient Protection and Affordable Care Act, enacted in March 2010, 
expanded the ownership and control reporting requirements for Medicare 
and Medicaid nursing homes by adding a new subsection to the statute. 
[Footnote 19] Within 2 years of enactment (March 2012), the act will 
require nursing home providers to report additional information on the 
nursing home, including: 

* the name and title of each member of the governing body of the 
nursing home; 

* each person or entity who is an officer, director, member, partner, 
trustee, or who directly or indirectly manages, advises, or supervises 
any element of the practices, finances, or operations of the facility; 
and; 

* persons or entities-—referred to as "additional disclosable 
parties"-—that with respect to the facility exercise operational, 
financial, or managerial control; provide policies or procedures for 
operations; provide financial or cash management services; provide 
management, administrative, clinical consulting, accounting, or 
financial services; lease or sublease real property to the facility; 
or own an interest of 5 percent or more in the real estate. 

Moreover, the additional disclosable parties must report information 
on their organizational structure (including the legal structure by 
which the disclosing entity operates) and describe their relationship 
to the nursing home and to one another. For example, an additional 
disclosable party that is a (1) corporation must report its officers 
and directors and any shareholders whose ownership interest is equal 
to or exceeds 5 percent of the corporation, and (2) limited liability 
company, must report the percentage ownership interest for its members 
and managers. 

Within 2 years of the enactment of these new provisions, BHS is 
required to promulgate final regulations that require facilities to 
report the information to BHS in a standardized format. The act also 
requires the Secretary to establish procedures to make such 
information available to the public within 1 year after the date the 
final rules are promulgated and published. Until the date the 
information is made available to the public, nursing homes must have 
this information available for BHS and other parties, including the 
state in which the nursing home is located, upon request. 

CMS Collection and Storage of Nursing Home Ownership Information: 

Nursing homes report ownership and managing control information to CMS 
through the agency's Medicare enrollment application when they apply 
to participate in the Medicare program.[Footnote 20] CMS stores this 
information in a national database called PECOS. The Medicare 
enrollment application requires nursing homes to report identifying 
information, such as their legal business name, licensure information, 
tax identification number, and any chain affiliation. Nursing homes 
must also report their ownership (by both individuals and 
organizations) and managing control information, as well as any 
adverse legal action taken against these entities. To report chain 
affiliation, nursing homes are asked to identify their "chain home 
office"—the entity responsible for providing centralized management 
and administrative services to homes under common ownership and common 
control. Nursing homes are required to submit updated information if 
they undergo a change of ownership or when there are any changes to 
ownership or other information previously provided on the Medicare 
enrollment application. (See table 1.) Nursing homes are required to 
sign the application, to certify, among other things, that the 
information in it is "true, correct, and complete.[Footnote 21] 

Table 1: Sample Sections of the CMS Medicare Enrollment Application: 

Identifying information: 
Legal business name; 
Tax ID; 
State licensure/certification; 
Change in ownership (if applicable). 

Ownership information (by organization): 
Legal business name; 
Tax ID; 
Adverse legal history; 
Relationship to provider:
- 5% or greater interest; 
- Partner; 
- Managing control. 

Ownership information (by individual): 
Name; 
Adverse legal history; 
Relationship to provider: 
- 5% or greater owner; 
- Director/officer; 
- Partner; 
- Managing employee. 

Chain home office information: 
Chain home office name; 
Tax ID; 
Provider's affiliation to chain home office. 

Source: GAO analysis of CMS-855A. 

Note: Sections shown pertain to CMS-855A. 

[End of table] 

CMS stores information collected through the Medicare enrollment 
application in the PECOS database.[Footnote 22] According to CMS, 
PECOS, implemented in 2002, was designed to serve three purposes: (1) 
collect information for a provider and record the associations between 
a provider and entities that have an ownership or control interest in 
the provider, including any chain associations; (2) allow CMS to make 
informed enrollment decisions based on a provider's past and present 
business history, any reported exclusions, sanctions, and felonious 
behavior; and, (3) ensure that CMS makes correct payments under the 
Medicare program. PECOS replaced the multiple contractor systems that 
previously housed provider enrollment data, facilitating the 
nationwide screening of providers billing Medicare. The database 
contains information on nursing homes that have submitted a Medicare 
enrollment application to CMS since 2002. As of July 2010, about 81 
percent of active Medicare-participating nursing homes were in PECOS. 
[Footnote 23] Statutes and CMS regulations indicate that certain 
ownership information must be provided to the public upon request. 
[Footnote 24] In a Federal Register announcement about PECOS, CMS 
noted its plan for the data to be shared with federal and state 
agencies as necessary to ensure proper payment of Medicare benefits, 
to assist with the administration of other federally funded health 
programs, or to assist with other activities within the state. 
[Footnote 25] 

Roles of CMS and States: 

Provider enrollment and oversight of nursing homes are managed by two
different entities within CMS; state entities also have an oversight 
role. CMS's Division of Provider and Supplier Enrollment, within the 
Office of Financial Management, is responsible for the Medicare 
enrollment process.[Footnote 26] CMS uses contractors to handle 
administrative tasks related to enrollment, including the collection 
and verification of enrollment applications and associated information 
submitted by providers. For example, in processing a provider's 
Medicare enrollment application, CMS contractors are required to 
examine the adverse legal history as reported on the application for 
individuals and organizations having an ownership or control interest 
in the provider and refer matters to CMS as necessary; this adverse 
legal history could make the provider ineligible to participate in the 
Medicare program. Each contractor is responsible for these tasks 
within a certain geographic region of the U.S. 

CMS's Survey and Certification Group is responsible for oversight of 
state survey activities and enforcement of nursing home quality. To 
participate in the Medicare program, nursing homes must pass regular 
inspections, also known as surveys, to ensure they comply with federal 
quality standards. These inspections are conducted by state survey 
agencies under contract with CMS. Most deficiencies identified, which 
can range from minor and isolated in scope to very serious and 
widespread throughout the nursing home, require the home to prepare a 
plan of correction. Results from state surveys of nursing homes are 
posted and routinely updated on CMS's Nursing Home Compare Web site. 

Private Investment Firms Acquired about 1,900 Nursing Homes from 1998 
through 2008, although Some Acquisitions Involved Real Estate Only and 
Not the Operations: 

About 1,900 unique nursing homes were acquired by PI firms from 1998 
through 2008. While some of the acquisitions involved entire nursing 
home chains—which included both the operations and any owned real 
estate—other acquisitions involved only real estate. Ten PI firms 
accounted for most of the acquired nursing homes. Six of the 10 PI 
firms responded to questions and described similar investment 
rationales. Firms reported that they were more involved in operations 
after acquiring a chain than after acquiring real estate only. 

About 1,900 Unique Nursing Homes Were Acquired by Private Investment 
from 1998 through 2008: 

We identified 77 acquisitions of nursing homes by PI firms from 1998 
through 2008, involving a total of 1,876 unique nursing homes. 
[Footnotes 27, 28] These acquisitions represent about 12 percent of 
the 15,711 nursing homes that participated in Medicare and Medicaid as 
of December 2008 and about 18 percent of for-profit nursing homes. 
[Footnote 29] Sometimes the same nursing homes were involved in more 
than one acquisition. For example, in some cases a nursing home 
operating company was purchased by a PI firm in one acquisition and 
the real estate for the same home was purchased by a different PI firm 
in a separate acquisition. In other cases, nursing homes were acquired 
more than once by different PI firms. For example, one set of nursing 
homes was acquired three separate times by three different PI firms 
from 1998 through 2008. Considering the 77 acquisitions cumulatively, 
the nursing homes involved would total over 2,500. Figure 2 shows the 
number of homes acquired, by year, over the 11-year time period. The 
majority of nursing homes (73 percent) were acquired by PI firms from 
2004 through 2007, a period characterized by acquisitions of large 
nursing home chains.[Footnote 30] 

Figure 2: Nursing Homes Involved in PI Acquisitions, 1998 through 2008: 

[Refer to PDF for image: vertical bar graph] 

Year: 1998; 
Number of homes: 87. 

Year: 1999; 
Number of homes: 10. 

Year: 2000; 
Number of homes: 116. 

Year: 2001; 
Number of homes: 109. 

Year: 2002; 
Number of homes: 75. 

Year: 2003; 
Number of homes: 198. 

Year: 2004; 
Number of homes: 595. 

Year: 2005; 
Number of homes: 39. 

Year: 2006; 
Number of homes: 682. 

Year: 2007; 
Number of homes: 525. 

Year: 2008; 
Number of homes: 74. 

Source: GAO analysis of Dealogic data and other information describing 
acquisitions of nursing homes. 

Note: Number of nursing homes includes homes that may have been 
involved in multiple acquisitions including (1) homes acquired more 
than once by PI firms during the period, and (2) separate acquisitions 
in which one PI firm acquired the nursing home real estate while a 
different PI firm acquired the operating company that leases the real 
estate. 

[End of figure] 

Ten Firms Accounted for Most of the Nursing Homes Acquired by Private 
Investment Firms, but Some Acquisitions Did Not Involve the Operations: 

Considering only the most recent acquirers as of the end of 2008, 10 
PI firms accounted for most nursing homes acquired from 1998 through 
2008. Table 2 shows the names of the nursing home chains, if 
applicable, and the number of nursing homes acquired by the 10 firms 
from 1998 through 2008 and still owned as of the end of the period. In 
some cases, the PI firms owned only operations or only real estate as 
of December 2008. The 10 firms accounted for 89 percent of the 1,876 
unique nursing homes acquired by PI firms during the period. 

Table 2: Top 10 Private Investment (PI) Nursing Home Chain and Real 
Estate Acquirers for Calendar Years 1998 through 2008, Still Owned as 
of December 31, 2008: 

PI firm: Abe Briarwood/National Senior Care[B]; 
Name of nursing home chain(s) acquired[A]: Integrated Health Services; 
Mariner Health Care; 
Number of chain homes acquired and still owned: 382; 
Number of homes where real estate only was acquired and still owned: 0; 
Total: 382. 

PI firm: Fillmore Capital Partners; 
Name of nursing home chain(s) acquired[A]: Beverly Enterprises; 
Number of chain homes acquired and still owned: 324; 
Number of homes where real estate only was acquired and still owned: 0; 
Total: 324. 

PI firm: The Carlyle Group; 
Name of nursing home chain(s) acquired[A]: HCR ManorCare; 
Number of chain homes acquired and still owned: 279; 
Number of homes where real estate only was acquired and still owned: 0; 
Total: 279. 

PI firm: Formation Capital[C]; 
Name of nursing home chain(s) acquired[A]: Genesis HealthCare; 
Number of chain homes acquired and still owned: 180; 
Number of homes where real estate only was acquired and still owned: 
65[D]; 
Total: 245. 

PI firm: SMWV/SWC[E]; 
Name of nursing home chain(s) acquired[A]: N/A; 
Number of chain homes acquired and still owned: 0; 
Number of homes where real estate only was acquired and still owned: 
189[F]; 
Total: 189. 

PI firm: GE Capital, Healthcare Financial Services[G]; 
Name of nursing home chain(s) acquired[A]: N/A; 
Number of chain homes acquired and still owned: 0; 
Number of homes where real estate only was acquired and still owned: 
162[G,H]; 
Total: 162. 

PI firm: Warburg Pincus; 
Name of nursing home chain(s) acquired[A]: Centennial HealthCare; 
Florida Healthcare Properties[I]; 
Number of chain homes acquired and still owned: 115; 
Number of homes where real estate only was acquired and still owned: 0; 
Total: 115. 

PI firm: Onex; 
Name of nursing home chain(s) acquired[A]: Skilled Healthcare; 
Number of chain homes acquired and still owned: 75; 
Number of homes where real estate only was acquired and still owned: 0; 
Total: 75. 

PI firm: The Straus Group; 
Name of nursing home chain(s) acquired[A]: CareOne[J]; 
Number of chain homes acquired and still owned: 20; 
Number of homes where real estate only was acquired and still owned: 
38[K]; 
Total: 58. 

PI firm: Lydian Capital; 
Name of nursing home chain(s) acquired[A]: Trilogy Health Services; 
Number of chain homes acquired and still owned: 49; 
Number of homes where real estate only was acquired and still owned: 0; 
Total: 49. 

Source: GAO analysis of Dealogic data and other information describing 
acquisitions of nursing homes. 

N/A = Not applicable 

Note: This analysis takes into account cases in which the initial PI 
acquiring firm subsequently sold some or all of its homes to another 
entity, either another PI firm or a non-PI entity. Nursing homes sold 
to other PI firms were associated with the most recent PI acquiring 
firm; nursing homes sold to non-PI entities were removed from the 
analysis. In addition, in cases where one PI firm acquired the real 
estate for a set of nursing homes and another PI firm acquired the 
nursing home operating company that leased the real estate, the 
nursing homes were included in the counts for both PI firms; this was 
the case for 315 nursing homes. 

[A] For real estate-only acquisitions, we do not list the names of the 
nursing home chains from which the real estate was acquired. 

[B] Abe Briarwood and National Senior Care are controlled by the same 
individuals. For the purpose of this analysis, the acquisitions of 
these entities were grouped together and the entities collectively
referred to as Abe Briarwood/National Senior Care. 

[C] Formation Capital joined with PI firm JER Partners to acquire 226 
of the 245 homes. 

[D] Formation Capital and GE Capital, Healthcare Financial Services 
partnered to acquire the real estate of five nursing homes. These 
homes are included under the totals for both firms. 

[E] The same individuals were involved in the ownership of SMV and 
SWC. For the purpose of this analysis, the acquisitions of these 
entities were grouped together and the entities collectively referred 
to as SMV/SWC. 

[F] All 189 nursing homes acquired by SMV/SWC are leased to operators 
acquired by Abe Briarwood/National Senior Care. The principal of SMV 
is also one of the three principals of National Senior Care. A second 
principal at National Senior Care has an ownership interest in SMV. 
Two complaints filed in New York State court provide information about 
the parties involved in Abe Briarwood/National Senior Care's and 
SMV/SWC's acquisitions of nursing homes. See Schron, et aL v. 
Grunstein, et aL, No. 650702/2010 (N.Y. Sup. Ct., filed June 23, 
2010); Mich II Holdings LLC, et aL v. Schron, et aL, No. 10-600736 
(N.Y. Sup. Ct., filed Mar. 23, 2010). 

[G] GE Capital, Healthcare Financial Services is part of General 
Electric Company, which discloses general corporate activity to the 
SEC. For 2006, General Electric Company disclosed that it acquired 
several senior housing portfolios from Formation Capital. 

[H] Of the 162 properties owned or leased by GE Capital, Healthcare 
Financial Services, 112 are leased or subleased to operating companies 
acquired by Warburg Pincus. 

[I] Florida Healthcare Properties was cofounded in December 2001 by 
Warburg Pincus and long-term care executives to acquire the operations 
of 49 nursing homes in Florida. In 2004, Florida Healthcare Properties 
acquired the operations of Centennial Healthcare from bankruptcy. 

[J] The Straus Group founded CareOne, which acquired 20 nursing homes 
through 2008. 

[K] Sixteen of the nursing homes for which The Straus Group acquired 
the real estate were operated by a company that was owned by a PI firm 
(Investcorp International). This PI firm owned the operating company 
from 1998 through 2007. 

[End of table] 

* Six of the top 10 PI firms acquired an entire nursing home chain or 
founded a company that became a nursing home chain. For example, the 
PI firm The Carlyle Group acquired the nursing home chain HCR 
ManorCare.[Footnote 31] Another PI firm, Warburg Pincus, cofounded 
Florida Healthcare Properties in 2001, which then became a chain by 
acquiring the operations for 49 nursing homes.[Footnote 32] 

* Two of the top 10 PI firms acquired only the real estate and leased 
at least a portion of their nursing homes to operating companies 
acquired by other PI firms. Two firms—SMV/SWC and GE Capital, 
Healthcare Financial Services—acquired the real estate for 353 nursing 
homes and leased 299 (85 percent) of their properties to nursing home 
operating companies acquired by other top 10 PI firms. For example, GE 
Capital, Healthcare Financial Services leased 112 properties to 
operating companies acquired by Warburg Pincus. (Fig. 3 illustrates 
how Warburg Pincus and GE Capital, Healthcare Financial Services 
separately acquired the operations and real estate of the Centennial 
Healthcare nursing home chain.) 

Figure 3: Example of Different PI Firms That Separately Acquired the 
Operations and Real Estate of the Same Nursing Homes: 

[Refer to PDF for image: illustration: 

Centennial Healthcare: 
Warburg Pincus acquired Centennial Healthcare, a publicly traded 
company, in 2000 which owned the operations of 100 nursing homes and 
the real estate for up to 66 of those homes. 

Acquisitions of Centennial Healthcare (Operations): 

* Centennial Healthcare (Warburg Pincus): 
- Unknown entities[A] acquired operations for 34 homes between 2000 
and 2004. 

* Centennial Healthcare (Warburg Pincus): 
- Florida Healthcare Properties doing business as Centennial (Warburg 
Pincus) acquired operations for 66 homes from Centennial HealthCare in 
2004[B][C]. 

Acquisitions of Centennial Healthcare’s Real Estate: 

* Centennial Healthcare (Warburg Pincus): 
- Formation Capital acquired the real estate for 66 homes in 2004 and 
became the landlord to Florida Healthcare Properties; 
-- Unknown entities[A] acquired the real estate for 4 homes between 
2004 and 2006; 
-- GE Capital, Healthcare Financial Services acquired the real estate 
for 62 homes in 2006 and became landlord to Florida Healthcare 
Properties. 

Source: GAO analysis of Dealogic data and other information describing 
acquisitions of nursing homes. 

[A] GAO was unable to determine the entities that acquired these 
nursing homes. 

[B] Florida Healthcare Properties was cofounded in December 2001 by 
Warburg Pincus and long-term care executives to acquire the operations 
of 49 nursing homes in Florida. In 2004, Florida Healthcare Properties 
acquired the operations of 66 nursing homes from Centennial Healthcare 
through bankruptcy. Florida Healthcare Properties is now known as 
LaVie Care Centers. 

[C] Operations and real estate ultimately acquired by Warburg Pincus 
or GE Capital, Healthcare Financial Services. 

[End of figure] 

* Two of the top 10 PI firms both acquired a nursing home chain and 
made real-estate-only acquisitions. Formation Capital bought the 
Genesis nursing home chain, but it also partnered with GE Capital, 
Healthcare Financial Services to acquire the real estate of five 
nursing homes.[Footnote 33] A second firm, The Straus Group, invested 
in the CareOne nursing home chain but also separately purchased the 
real estate only of 58 nursing homes. 

According to information gathered from 2009 through 2010, 9 of the top 
10 PI nursing home acquirers reported owning 1,503 nursing homes, 
compared to the 1,496 nursing homes that they acquired as of December 
31, 2008.[Footnote 34] We were unable to obtain current ownership data 
from 1 of the top 10 PI nursing home acquirers. 

Most of the Six PI Firms That Responded to Our Questions Described 
Similar Investment Rationales and Were More Involved in Operations 
When Acquiring Chains Than Real Estate Only: 

Most of the six PI firms that responded to our questions described 
similar reasons for investing in the nursing home industry; officials 
from five of these six PI firms cited increased demand for long-term 
care due to an aging population. For example, officials at one PI firm 
noted that no new homes had been built in recent years and anticipated 
that demand for senior housing would exceed the available supply. 
Officials at four PI firms told us they expected to hold their 
investments for time frames ranging from 3 to more than 20 years. 
However, one of these PI firms has already sold one of the portfolios 
it acquired and had planned on selling its other portfolios. (See 
appendix I for more details on each firm's nursing home investment 
rationale.) 

Of those that responded to our questions, four PI firms reported 
acquiring entire nursing home chains.[Footnote 35] Officials from all 
four of these firms reported holding seats on the chains' corporate 
boards of directors. In general, they characterized their involvement 
as related to the strategic direction of the chain rather than 
overseeing day-to-day operations, which all four of these PI firms 
described as the dominion of each chain's executive management. Three 
of the four PI nursing-home-chain acquirers said they kept the same 
executive management after they acquired a chain because it was 
already well managed; one firm believed the chain it acquired had 
quality-of-care challenges and ultimately hired a new chief executive 
officer, who is a physician.[Footnote 36] Some firms noted 
improvements made across chains since acquisition. For example, 
according to officials of one PI firm acquirer, among other things, it 
directed capital to hire directors of clinical education, train 
facility staff, and reduce staff turnover. Another firm helped create 
an independent quality committee to provide the board with independent 
expert guidance on assessing quality-of-care data. 

Two of the four PI nursing-home-chain acquirers reported dividing the 
operations and real estate into separate companies for tax or 
financing purposes while still retaining them under common ownership. 
Officials at these two firms noted the benefits of having nursing home 
operations and real estate under the same ownership. One commented 
that when operating and real estate companies are unaffiliated, 
tensions can arise over responsibility for improvements, reducing 
incentive to make improvements to the facility.[Footnote 37] One real-
estate-only acquirer strongly disagreed with this statement and noted 
that a landlord with a triple net lease has a great incentive for 
ensuring the real estate is appropriately maintained. This firm said 
such leases clearly state the responsibilities of the real estate 
owner and the operator with respect to facility improvements and said 
that disagreements have been few and limited. 

The three PI firms (of those that responded to our questions) that 
made real estate-only acquisitions had no representation on the boards 
of the operating companies to which they leased real estate, and so 
were not in a position to directly control the resources or change the 
policies of these companies. All three real estate-only acquirers 
leased real estate to nursing home operators under "triple net" 
agreements, through which, in addition to rent, the operator agrees to 
pay all real estate taxes, property insurance, and maintenance on the 
property (including capital costs).[Footnote 38] Two firms' leases 
calculated a base rent plus rent as a percentage of the operator's 
adjusted net income or excess cash flow—ranging from 35 to as much as 
50 percent.[Footnote 39,40] In addition, while officials at all three 
firms emphasized that they "do not tell the nursing home operators how 
to run their businesses," officials at two of the three PI firms that 
acquired real estate indicated they monitor clinical performance at 
acquired homes. These officials said they would consider terminating a 
lease if poor or declining care persisted, although they had not 
encountered such a situation. The remaining real estate acquirer told 
us it had never monitored the quality of care provided by the 
operators to whom it leased facilities, but would like to start 
monitoring operations, given the risk to its investment should an 
operator it leases to lose its state license to operate a nursing home. 

PECOS Data on PI Ownership and Chain Affiliation Are Hard to Decipher, 
Incomplete, and Difficult for CMS to Verify: 

PECOS provided a confusing picture of the ownership structures and 
chain affiliations of the six PI-owned nursing home chains we 
reviewed.[Footnote 41] For example, nursing homes had multiple owners 
listed in PECOS, but no indication of the hierarchy or relationships 
among the owners was provided. PI ownership of the homes, moreover, 
was not always readily apparent in the data. Some states we 
interviewed collect ownership information that better captures the 
relationships among owners, but states still report challenges 
untangling complex ownership structures. Adding to the difficulties 
deciphering the data, we also found that in some cases the data were 
incomplete—including ownership information for homes whose real estate 
was acquired by a PI firm and chain information for several homes. 
CMS's ability to determine the accuracy and completeness of ownership 
data reported by nursing homes is limited. 

PECOS Data on PI Nursing Home Ownership Are Hard to Decipher: 

Even though our analysis of PECOS was informed by extensive research 
on PI nursing home acquisitions, the complex ownership structures 
established by some PI-owned nursing home chains we reviewed made 
PECOS data hard to decipher and PI ownership was not always evident. 
[Footnote 42] 

Nursing homes often have numerous owners listed, but no information 
provided in PECOS to indicate how they may be related. For the six 
chains we reviewed, the number of organizational owners listed per 
home ranged from 1 to 26, with an average of 8 organizational owners 
per home.[Footnote 43] The multitude of organizational owners may have 
reflected the complex ownership structures created by some nursing 
home companies. For example, one PI entity that owned a nursing home 
chain created: 

* separate limited liability companies for the operation of each 
individual home in the chain; 

* separate limited liability companies that owned the nursing home 
real estate; 

* a separate company that leased all the properties from the real 
estate holding companies and then subleased them to the operating 
companies; and; 

* a holding company set up to own the entire chain. 

Beyond inventorying these ownership entities, PECOS currently provides 
no information to indicate any hierarchy or relationships among the 
organizational owners listed, such as whether one entity is a parent 
or a subsidiary of another. Moreover, while entities with at least 5 
percent direct or indirect ownership of the assets of the provider are 
listed in PECOS, the database does not include information on their 
specific ownership percentage, adding difficulty to determining the 
hierarchy and relationships among the owners listed.[Footnote 44] 
Because we had additional information, we were able in some cases to 
recognize the varying levels of ownership reported in the data, 
including entities that were holding companies, private investment 
funds with no employees, or entities that were investors in the 
private investment firm or an affiliate, relationships that were not 
otherwise apparent from the data. For example, the Washington State 
Investment Board, which invests state and local pension funds, was 
listed among the owners for homes acquired by one PI firm, and the 
California Public Employees Retirement System was listed among the 
owners for nursing homes acquired by another PI firm. According to the 
PI firms, these two entities are passive investors; that is, they do 
not play a role in management of the nursing home chains. 

Fully capturing these complex relationships among nursing home owners 
poses challenges for a data system such as PECOS. For example, in 
documents one PI-owned nursing home chain submitted to a state agency, 
the chain's delineation of its ownership structure took several pages 
to describe and included a detailed chart of the ownership structure. 
CMS officials said that providers can supply such organizational 
charts when they submit Medicare enrollment information, but these 
documents are maintained outside of PECOS by CMS contractors; 
currently, PECOS does not have the capacity to store them. 

Some states that we interviewed that collect nursing home ownership 
information for licensure purposes collect information to capture 
relationships among owners. Officials at two states we interviewed 
maintain databases that attempt to capture the hierarchy of the 
ownership structure surrounding the nursing home. Missouri's ownership 
database, for example, can be used to identify successive levels of 
ownership (see figure 4), which is not possible to discern with the 
data in PECOS. 

Figure 4: Comparison of Organizational Ownership Information Contained 
in State Data from Missouri and in PECOS for One PI-Owned Nursing Home: 

[Refer to PDF for image: illustration] 

Missouri[A]: 

Top level: 
Fillmore Capital Partners, LLC (100). 

Second level: 
Washington State Investment Board (99)[C]; 			
Fillmore Strategic Management, LLC (1). 

Under the second level: 
Fillmore Strategic Investors, LLC (100); 
Drumm Investors, LLC (100); 
Pearl Senior Care, LLC (100); 
Beverly Enterprises, Inc. (100); 
Beverly Health and Rehabilitation Services, Inc. (100); 
Commercial Management, Inc. (nursing home provider); 
Nursing home. 


PECOS[B]: 

Top level: 
Beverly Health and Rehabilitation Services, Inc.
Drumm Investors LLC; 
Fillmore Strategic Investors LLC; 
Pearl Senior Care, LLC. Beverly Enterprises Inc. 
Washington State Investment Board[C]. 

Under the top level: 
Commercial Management, Inc. (nursing home provider); 
Nursing home. 						 

Source: Missouri Department of Health and Senior Services as of 
October 2009 and PECOS as of August 2009. 

Note: Punctuation inconsistencies reflect how the data appeared in the 
Missouri and PECOS databases. 

[A] Number in parentheses indicates percentage ownership in the entity 
below. 

[B] Additional entities listed in PECOS as having "managing control" 
included: Fillmore Strategic Management, LLC and Beverly Enterprises 
Inc. According to the Medicare enrollment application, a managing 
organization is one that exercises operational or managerial control 
over the provider or conducts the day-to-day operations of the 
provider and need not have an ownership interest in the provider. 

[C] According to a representative of the PI firm, the Washington State 
Investment Board is a passive investor and does not play an active 
role in management of the nursing home chain. 

[End of figure] 

State officials also told us, however, that they are challenged by 
complex ownership structures among nursing homes. State officials from 
Missouri, Maryland, New Jersey, Illinois, and California cited complex 
ownership structures—including multiple layers—as obscuring ownership 
or making oversight difficult. State officials also observed that 
nursing home chains have set up separate limited liability companies 
as operators of each home and they do not always obtain information 
that identifies the ultimate parent owner.[Footnote 45] For example, 
Illinois officials noted that they do not always obtain ownership 
information for the parent company, such as a private equity firm, and 
sometimes their records only show the individual limited liability 
company as the owner, such that a nursing home set up as an individual 
limited liability company in one town would not be linked to a home 
from the same chain set up as a limited liability company in another 
town. 

Expanded reporting requirements contained in the Patient Protection 
and Affordable Care Act and regulations to implement the act provide 
CMS with an opportunity to address some of these issues. In 
particular, the act requires homes to provide the identity of and 
information on "additional disclosable parties" and their relationship 
to the nursing home and one another. In addition, the act requires 
that nursing homes report the organizational structure of additional 
disclosable parties organized as limited liability companies 
including, for example, their members, and managers, and as 
applicable, their percentage ownership interest in the company. While 
these expanded reporting requirements may provide more insights into 
the relationships among some of the owners in PECOS, they may not 
capture the hierarchy and relationships across all the numerous owners 
currently being reported. 

PI ownership was often not readily apparent in PECOS. The Medicare 
enrollment application does not ask for information on the business 
type of organizational owners, including whether they are PI firms, so 
it is not possible to use PECOS to identify all PI-owned nursing 
homes. When we tried to identify the specific private investment firms 
we were aware of in the ownership data in PECOS, we found that the 
entities through which the PI firms acquired nursing homes were often 
listed. In some cases, associating these entities with the PI firm was 
relatively straightforward, as the entities had names that were 
readily identifiable with the PI firms. For example, among the many 
owners listed for homes in the HCR ManorCare chain, were the entities 
Carlyle Partners V MC, L.P. and Carlyle MC Partners, L.P., two private 
investment funds managed by The Carlyle Group, the PI acquirer of the 
chain. 

In contrast, PI ownership of other homes we examined was difficult to 
identify in PECOS. In four of the PI-owned chains we examined, PI 
firms or entities readily identifiable with the PI firms were not 
apparent among the organizational owners reported for any of the 
nursing homes in the chains or were listed for only a small fraction 
of the homes. The number of homes in these four-PI owned chains for 
which PI ownership was not readily apparent in PECOS accounted for 62 
percent of the 1,003 nursing homes we examined. We were not able to 
fully explain this situation. It is possible that some PI firms, by 
virtue of how they structured their transactions to acquire the homes, 
may not have been required to be reported by the governing statute at 
the time. It is also possible that entities were reported that we did 
not recognize were related to the PI firm. On the other hand, PI firms 
may not have been reported, even if required, for other reasons, for 
example, due to confusion about the reporting requirements. 
Specifically, we found the following: 

* Representatives of one PI firm that was not listed in PECOS among 
the owners for any of the homes in the chain it acquired said that a 
special purpose entity (SPE) was created for the acquisition of the 
chain and was reported as an owner on the Medicare enrollment 
application.[Footnote 46] The SPE, which was not readily identifiable 
with the PI firm, was reported for only about three-quarters of the 
chain's homes.[Footnote 47] The representatives said that the PI firm 
itself did not own any interests in the SPE and so was not on the 
application. Individuals associated with the PI firm were listed as 
officers/directors for most of the homes in the chain. 

* Another PI firm, which was also not reported as an owner for any of 
the homes in the chain it acquired, did own the SPE used to acquire 
the chain, according to officials of the nursing home chain. However, 
the officials said that after closing on the acquisition, the title to 
each of the homes was held by a subsidiary of the company that 
operates all the homes and therefore the SPE neither holds title to 
nor operates the homes but rather is an indirect owner. The SPE, which 
was not readily identifiable with the PI firm, was listed among the 
organizational owners in PECOS for a small portion of the homes. The 
statute currently requires the reporting of persons and certain 
entities that have an ownership or control interest of at least 5 
percent, including indirect interests, in the assets of the provider 
entity. 

* A third PI firm sold the real estate for most of the homes in the 
chain to another company shortly after the acquisition; the company 
then leased the facilities back to an affiliate of the PI firm. The 
affiliate was listed as an owner in PECOS for most of the homes in the 
chain; the PI firm was not. The individuals involved in the PI firm's 
purchase of the nursing home chain are also principals of the 
affiliate, some of whom were reported in PECOS as individuals having 
an ownership interest for a portion of the homes in the chain. 
[Footnote 48] 

* Finally, for one PI firm, the company the PI firm formed to fund its 
acquisition of the chain, which was readily identifiable with the 
firm, appeared as an owner in PECOS but for less than 20 percent of 
the homes in the chain. In this case, the chain's representatives said 
they had been instructed by the CMS contractor to report only two 
levels of ownership above the nursing home. As a result, the ownership 
information reported by this chain was far from complete, and no 
common owner, including the PI firm, was apparent for all of the 
homes. The representatives of the chain said that they decided to 
submit complete ownership information for their homes, on their own 
initiative, and were in the process of doing so, working with a new 
CMS contractor.[Footnote 49] 

PECOS does not provide a clear picture of individuals in the ownership 
structure. The information in PECOS on individuals with an ownership 
or control interest in the provider is collected separately from and 
is not linked to information about organizational owners and does not 
provide a clear picture of where they fit in the ownership structure. 
Specifically, the Medicare enrollment application asks for the names 
and even the birth dates of individuals with an ownership or control 
interest—including those with 5 percent or more direct or indirect 
ownership in the provider, with a partnership interest in the 
provider, or who are directors or officers of the provider—but it does 
not ask for the organization they are affiliated with or their titles. 
As a result, it is not clear if individuals reported as having a 5 
percent or more ownership or control interest are direct or indirect 
owners of the nursing home provider. In addition, CMS has not required 
providers to report information about individuals who are partners, 
officers, or directors of entities above the nursing home provider 
level, such as members of the nursing home chain's board of directors, 
which in some cases would include representatives of the PI firm. 
Identification of these entities is important because they are 
ultimately responsible for the management of the chain. Providers may 
be reporting such individuals, but it was not possible for us to 
distinguish this in the data because they are broadly categorized as 
officers or directors with no information included on their affiliated 
organizations. This issue could be addressed when BHS implements the 
reporting provisions of the Patient Protection and Affordable Care Act. 

In contrast, two states we contacted—Missouri and Texas—collect more 
comprehensive information about individuals with ownership or control 
interests in the nursing home provider and in entities above the 
provider level. These states also collect information on the specific 
positions of reported individuals in these entities, such as 
president, secretary, member, or general or limited partner. 

PECOS Data for a PI Firm That Acquired Real Estate Only Were 
Incomplete and PECOS Chain Ownership Information Was Not Collected in 
a Straightforward Manner: 

In addition to the challenges in identifying PI owners in PECOS data, 
we found that the data were sometimes incomplete and that the 
information on chain ownership was not collected in a straightforward 
manner, making chain associations difficult to identify. 

One PI firm that acquired real estate only was not reported. A PI firm 
that leased nursing home real estate to a provider but that also had a 
security interest in the assets of the provider was not reported in 
PECOS; however, a security interest may constitute an ownership or 
control interest for purposes of Section 1124 that could obligate 
disclosure as an owner on the Medicare enrollment application. 
[Footnote 50] For example, we found that one firm was not reported in 
PECOS among the owners of the nursing homes within the chain for which 
it owned the real estate. However, a lease agreement indicates that 
the PI firm also had a security interest in the nursing home's assets 
that could obligate reporting of the entity as the holder of an 
ownership or control interest. Officials with the PI firm told us that 
they were not familiar with the application's reporting requirements. 
CMS officials noted that it may not be clear to providers that these 
entities must be reported, as the instructions on the application do 
not specifically indicate that a security interest is a reportable 
interest, and that going forward CMS may need to revise the 
application to make this explicit. The Patient Protection and 
Affordable Care Act requires that entities and individuals that lease 
or sublease real property to nursing homes be reported, whether or not 
they have a security interest or other reportable interests. Such 
information, however, will not be reported to BHS until after it 
issues a final rule implementing the act's requirements, which may not 
be for several years.[Footnote 51] 

Some states currently collect information on nursing home real estate 
owners. For example, Illinois collects information on nursing home 
real estate owners, if different from the operator, and requires the 
submission of any lease agreements Illinois officials told us that the 
state also requires operators to report individuals who directly or 
indirectly own at least 5 percent of the nursing home real estate and 
their percentage stake. With this information the state can then 
identify at the state level if the same individuals have ownership 
stakes in both the nursing home real estate and the operating company. 
CMS also has acknowledged real estate owners in issuing guidelines on 
its notification policy for poorly performing nursing homes designated 
as Special Focus Facilities.[Footnote 52] The guidelines direct 
notification to owners of the building and land if separate from the 
holder of the provider agreement and described such owners as an 
"accountable party." 

PECOS chain information was not straightforward and sometimes was 
incomplete. PECOS was established in part to make provider-chain 
associations clear, but we found that making these associations in 
PECOS was not straightforward because of the way the data were 
collected; in addition, the chain data were sometimes incomplete. 
[Footnote 53] Rather than requiring providers to report all of the 
homes that are part of the same chain, CMS requires each home to 
report its chain home office.[Footnote 54] The chain home office is 
the entity responsible for providing centralized management and 
administrative services to providers under common ownership and common 
control. 

When we reviewed the chain data in PECOS for the six PI-owned chains 
for which we had information, we found that most, but not all, of the 
homes belonging to the same chain could be identified through their 
chain home office information, in particular by using the name of the 
chain home office administrator. Not all homes within the same chain 
were associated with the same chain home office. For example, most of 
the homes in the Trilogy Health Services chain were divided among 
three different chain home offices. The three groups of homes could 
not be effectively linked by the chain home office name or address 
fields in PECOS, but they did share the same chain home office 
administrator. CMS officials told us that the one way they have to 
link homes reported under different chain homes offices is if the 
homes have the same chain home office administrator listed. However, 
in some cases, homes belonging to the same PI-owned chain were 
reported under different chain home offices with different chain home 
office administrators, which can make linking all of the homes 
belonging to the same chain more challenging. Table 3 shows chain 
information in PECOS for the six nursing home chains we examined. 

Table 3: Chain Home Office Information Listed in PECOS for Nursing 
Homes in Six PI-Owned Nursing Home Chains: 

Nursing home chain: Centennial HealthCare (now known as LaVie Care 
Centers); 
Chain home office name: Centennial Healthcare Holding Co. LLC; 
Chain home office address: 400 Perimeter Center Neter, 650, Atlanta, 
GA; 
Chain home office administrator[A]: Administrator A; 
Percentage of homes listing chain home office: 2%. 

Nursing home chain: Centennial HealthCare (now known as LaVie Care 
Centers); 
Chain home office name: Shoreline Healthcare Management, LLC; 
Chain home office address: 303 Perimeter N Ctr, 500, Atlanta, GA; 
Chain home office administrator[A]: Administrator B; 
Percentage of homes listing chain home office: 83%. 

Nursing home chain: Centennial HealthCare (now known as LaVie Care 
Centers); 
Chain home office name: Sea Crest Health Care Management LLC; 
Chain home office address: 10210 Highland Manor Drive, Ste 250, Tampa, 
FL; 
Chain home office administrator[A]: Administrator C; 
Percentage of homes listing chain home office: 2%. 

Nursing home chain: Centennial HealthCare (now known as LaVie Care 
Centers); 
Chain home office name: Senior Solutions Healthcare Management and 
Consulting Services LLC; 
Chain home office address: 1200 Brush Hill Rd, 500, Milton, MA; 
Chain home office administrator[A]: Administrator B; 
Percentage of homes listing chain home office: 9%. 

Nursing home chain: Centennial HealthCare (now known as LaVie Care 
Centers); 
Chain home office name: No chain home office information reported in 
PECOS; 
Chain home office address: N/A; 
Chain home office administrator[A]: N/A; 
Percentage of homes listing chain home office: 4%. 
				
Nursing home chain: Genesis HealthCare; 
Chain home office name: Genesis Elder Care Corp. 
Chain home office address: 101 East State Street, Kennett Square, PA; 
Chain home office administrator[A]: Administrator A; 
Percentage of homes listing chain home office: 1%. 

Nursing home chain: Genesis HealthCare; 
Chain home office name: Genesis Healthcare Corporation; 
Chain home office address: 101 East State Street, Kennett Square, PA; 
Chain home office administrator[A]: Administrator A; 
Percentage of homes listing chain home office: 92%. 
		
Nursing home chain: Genesis HealthCare; 
Chain home office name: Genesis Operations LLC; 
Chain home office address: 101e State St, Kennett Square, PA; 
Chain home office administrator[A]: Administrator A; 
Percentage of homes listing chain home office: 1%. 

Nursing home chain: Genesis HealthCare; 
Chain home office name: NeighborCare Inc; 
Chain home office address: 101 E. State Street, Kennett Square, PA; 
Chain home office administrator[A]: Administrator B; 
Percentage of homes listing chain home office: 2%. 

Nursing home chain: Genesis HealthCare; 
Chain home office name: No chain home office information reported in 
PECOS; 
Chain home office address: N/A; 
Chain home office administrator[A]: N/A; 
Percentage of homes listing chain home office: 4%. 
				
Nursing home chain: Beverly Enterprises (now known as Golden Living); 
Chain home office name: Beverly Enterprises Inc. 
Chain home office address: 650W Alluvial Ave, Fresno, CA; 
Chain home office administrator[A]: Administrator A; 
Percentage of homes listing chain home office: 16%. 

Nursing home chain: Beverly Enterprises (now known as Golden Living); 
Chain home office name: Golden Gate National Senior Care LLC; 
1000 Fianna Way, Fort Smith, AR; 
Chain home office administrator[A]: Administrator B; 
Percentage of homes listing chain home office: 1%. 

Nursing home chain: Beverly Enterprises (now known as Golden Living); 
Chain home office name: No chain home office information reported in 
PECOS; 
Chain home office address: N/A; 
Chain home office administrator[A]: N/A; 
Percentage of homes listing chain home office: 83%. 
				
Nursing home chain: HCR ManorCare; 
Chain home office name: HCR Manor Care Services Inc; 
Chain home office address: 333 N Summit Street, 16th Floor, Toledo, OH; 
Chain home office administrator[A]: Administrator A; 
Percentage of homes listing chain home office: 100%. 
				
Nursing home chain: Mariner Health Care (now known as SavaSeniorCare); 
Chain home office name: Mariner Health Care, Inc. 
Chain home office address: One Ravinia Dr., Suite 1500, Atlanta, GA; 
Chain home office administrator[A]: Administrator A; 
Percentage of homes listing chain home office: 1%. 

Nursing home chain: Mariner Health Care (now known as SavaSeniorCare); 
Chain home office name: SavaSeniorCare LLC; 
Chain home office address: One Ravinia Drive, Suite 1500, Atlanta, GA; 
Chain home office administrator[A]: Administrator B; 
Percentage of homes listing chain home office: 8%. 

Nursing home chain: Mariner Health Care (now known as SavaSeniorCare); 
Chain home office name: SSC Equity Holdings LLC; 
Chain home office address: 5300 W Sam Houston Parkway North, Suite 
100, Houston, TX; 
Chain home office administrator[A]: Administrator B; 
Percentage of homes listing chain home office: 81%. 

Nursing home chain: Mariner Health Care (now known as SavaSeniorCare); 	
Chain home office name: SSC Special Holdings LLC; 
Chain home office address: 920 Ridgebrook Road, Sparks, MD; 
Chain home office administrator[A]: Administrator C; 
Percentage of homes listing chain home office: 1%. 

Nursing home chain: Mariner Health Care (now known as SavaSeniorCare); 
Chain home office name: No chain home office information reported in 
PECOS; 
Chain home office address: N/A; 
Chain home office administrator[A]: N/A; 
Percentage of homes listing chain home office: 9%. 
				
Nursing home chain: Trilogy Health Services; 
Chain home office name: Center for Community Reentry Inc. 
Chain home office address: 9400 Williamsburg, Plz 300, Louisville, KY; 
Chain home office administrator[A]: Administrator A; 
Percentage of homes listing chain home office: 51%. 

Nursing home chain: Trilogy Health Services; 
Chain home office name: Trilogy FSC Investors, LLC; 
Chain home office address: 1650 Lyndon Farm Ct, Louisville, KY; 
Chain home office administrator[A]: Administrator A; 
Percentage of homes listing chain home office: 13%. 

Nursing home chain: Trilogy Health Services; 
Chain home office name: Trilogy Health Services, LLC; 
Chain home office address: 1650 Lyndon Farm Ct, 201, Louisville, KY; 
Chain home office administrator[A]: Administrator A; 
Percentage of homes listing chain home office: 31%. 

Nursing home chain: Trilogy Health Services; 
Chain home office name: No chain home office information reported in 
PECOS; 
Chain home office address: N/A; 
Chain home office administrator[A]: N/A; 
Percentage of homes listing chain home office: 5%. 
				
Source: GAO analysis of PECOS data, as of August and September 2009. 

N/A = Not applicable. 

Note: Punctuation and other inconsistencies reflect how the data 
appeared in PECOS. 

[A] Actual names of the chain home office administrators are omitted 
from this table. 

[End of table] 

In addition to the difficulty of using PECOS to identify all homes in 
a chain, we found that one large PI-owned chain did not report chain 
home-office information for more than 200 homes. Officials from the 
nursing home chain indicated that when the chain was acquired by the 
PI firm, most of the nursing homes were set up under separate 
licensees and had not yet been branded with the chain name, so the 
company made the decision not to report these homes as part of a 
chain. The officials said they have since reversed this decision and 
are in the process of updating the chain information for these homes. 
They noted that prior to the acquisition by the PI firm, they reported 
all the homes in the chain under one chain home office. 

Completeness and Accuracy of Provider Reported Ownership Data Is 
Difficult to Verify and CMS Contractor Performance May Contribute to 
Problems in PECOS Data: 

Some of the problems we observed with the ownership and chain data in 
PECOS are due in part to CMS's limited ability to recognize when the 
information reported by providers is incomplete or inaccurate. CMS's 
contractors have several responsibilities for verifying information 
reported on the Medicare enrollment application. For example, 
contractors are required to check that the reported legal business 
names and tax identification numbers of providers and organizational 
owners match those in Internal Revenue Service documentation. CMS 
contractors are also responsible for following up with providers to 
resolve missing or inconsistent information. For example, a CMS 
official explained that if contractors independently came across 
ownership associations that should be reported, the contractor should 
contact the provider. A CMS official acknowledged, however, that the 
agency and its contractors may not always be aware of missing or 
inconsistent information. For example, the CMS official confirmed that 
the agency would not necessarily know if a provider's chain 
affiliation was not reported.[Footnote 55] One CMS official explained 
that the agency does not have the resources to delve into the 
relationships of the entities reported to identify if there are any 
more owners not being reported. The official explained that CMS relies 
on the ownership information that is self-reported to CMS and that the 
agency is not "looking behind" what is reported to verify that the 
ownership information is complete. 

Contractor performance may also contribute to the completeness of the 
data in PECOS. As noted earlier, representatives of one nursing home 
chain told us that its CMS contractor instructed them to report only 
two levels of ownership above the nursing home provider, resulting in 
several entities going unreported as owners for many of the homes. In 
another example involving the same contractor, chain information was 
not reported for more than 200 homes. After some investigation, a CMS 
official confirmed that, based on the information reported on the 
Medicare enrollment application for these homes, the contractor should 
have followed up with the provider about the lack of data reported. 
However, the contractor's office responsible for processing this 
provider's applications had since closed, and the current contractor 
was not able to ascertain whether this follow up had occurred. 
Finally, in a third example, when we noted that a specific 
organizational owner was not reported for all homes in a chain, an 
official from the PI firm that acquired the chain said this entity was 
reported on all the Medicare enrollment applications submitted and 
suggested that the data may reflect the CMS contractor's preference 
for what is entered into PECOS from the application. 

The performance of CMS contractors is overseen by project officers in 
the agency's Center for Medicare Management, which developed a new on-
site audit program to review contractors' management of provider 
enrollment functions. According to a CMS official, the on-site audits 
are designed to pick up on instances in which contractors failed to 
follow up with providers about missing information on the Medicare 
enrollment application. The on-site audits, however, cover all 
provider types, not just nursing homes; focus on the processing of the 
application as a whole, not on particular sections of the application, 
such as the ownership sections; and, according to a CMS official, do 
not attempt to verify the accuracy or completeness of the ownership 
information reported on the application. According to a CMS official, 
as of August 2009, the agency had conducted two on-site audits under 
the new program.[Footnote 56] Beyond on-site audits CMS does not 
conduct checks on the PECOS database for internal consistency, such as 
whether nursing homes reported to be part of a chain in fact have a 
common owner reported. A CMS official said the agency would like to be 
able to conduct such checks but lacks the necessary resources given 
other priorities. 

HHS Has Made Limited Use of Ownership Data, but State Survey Agencies 
and Others Expressed Interest in Nationwide Data to Improve Nursing 
Home Oversight: 

The use of PECOS nursing home ownership data has generally been 
limited to the Medicare enrollment process and only CMS's Division of 
Provider and Supplier Enrollment has routine access to the database. 
State survey agencies expressed interest in having routine access to 
nationwide ownership data, such as the information stored in PECOS 
because they lack a systematic way of learning about the performance 
of nursing homes in other states with the same owners as those 
applying to operate in their states. CMS officials told us that the 
PECOS database was not developed with the objective of providing 
access to external users, such as states or other offices within HHS. 
Although these officials indicated that CMS had no immediate plans to 
give states access to the database, they are considering how such 
access could be provided. 

HHS's Use of PECOS Ownership Data Has Been Limited: 

Within HHS, use of the PECOS ownership data has been limited. Only 
CMS's provider enrollment division has routine access to PECOS data To 
date, the division has focused primarily, but not exclusively, on 
populating PECOS and has not developed any standardized internal 
reports on nursing home ownership data that could be shared within 
HHS. Specifically, ownership data are used when providers apply to 
participate in Medicare to screen out individuals or entities that are 
not approved to participate in the Medicare program.[Footnote 57] CMS 
contractors review the ownership information to identify if any 
reported owners are in the HHS OIG's Medicare Exclusion Database or on 
General Services Administration's (GSA) debarment list of entities 
debarred or excluded from receiving federal contracts. The contractors 
perform such reviews when the Medicare enrollment application is 
submitted and ownership information is entered into PECOS, but until 
recently did not perform subsequent checks as the GSA or OIG lists 
were updated.[Footnote 58] During a CMS program integrity check in 
June 2009, CMS found individuals and organizations that were in the 
OIG Medicare Exclusion Database or on the GSA debarment list and 
should have been denied association with a Medicare provider, but were 
nonetheless affiliated with active PECOS enrollment records. 

Prior to the enactment of the Patient Protection and Affordable Care 
Act, officials in CMS's Survey and Certification Group told us that 
they did not consider ownership when looking at nursing home quality 
issues.[Footnote 59] In an April 2010 letter, however, the group's 
director indicated that with respect to the expanded nursing home 
ownership disclosure requirements in the Patient Protection and 
Affordable Care Act, the group's responsibilities include linking 
quality of care performance information with ownership data. 

Other CMS components and BHS organizations we spoke with also do not 
have access to PECOS or similar ownership data and have noted 
challenges to oversight and enforcement. For example, the CMS regional 
offices we spoke with reported relying on informally collected 
ownership information, and several expressed some interest in access 
to a national nursing home ownership database, such as PECOS, as a 
means to identify quality-of-care problems at homes under common 
ownership. One regional office official said it would be helpful to 
have all ownership percentage stakes disclosed. Officials from BHS's 
OIG division that negotiates quality-of-care Corporate Integrity 
Agreements with nursing home chains, told us that they may learn about 
systemic issues across commonly owned homes through anecdotes or 
multiple referrals, but otherwise do not have a systematic way to 
determine if the owner of a home it investigates owns other nursing 
homes, which might cause the BHS OIG to expand its investigation. 
Furthermore, an official from CMS's Office of Financial Management 
said that he often has to rely on Google Web searches to identify 
nursing home owners because he does not have access to PECOS despite 
his role in financial integrity. A CMS official from the agency's 
Financial Management Systems Group told us that the agency was just 
starting a workgroup to examine the PECOS interests of other groups 
within CMS and how to provide access to accommodate those groups' 
needs. The scope of this workgroup, however, does not extend to 
providing access to PECOS to groups outside CMS or other BHS offices, 
including OIG. 

State Survey Agencies Used the Nursing Home Ownership Information They 
Collected for Oversight, and Expressed Interest in Access to a 
Nationwide Database: 

While the state survey agencies we interviewed collect and use nursing 
home ownership data, that information is limited to nursing homes that 
operate in their states, but many nursing home companies operate in 
multiple states. Several state officials we interviewed expressed an 
interest in nationwide ownership data, such as the information stored 
in PECOS, as a means for more effective oversight. 

Many state agencies collect nursing home ownership information 
primarily through state licensure and renewal applications. Each state 
is responsible for establishing its own licensing requirements. 
[Footnote 60] Among the six states we interviewed who used ownership 
data, agency officials reported using the information for oversight 
purposes and to engage directly with the owners of nursing home chains 
to improve conditions at particular homes. For example, officials in 
Maryland, Illinois, and New Jersey cited cases where they used 
ownership information to contact the owners, including landlords, to 
address patterns of poor care within a home or across a chain. 
[Footnote 61] A Maryland official said that providing oversight at the 
higher chain level is important because they have observed instances 
of chain owners shifting staff from other nursing homes to the home 
where the state identified problems, resulting in problems showing up 
at the homes that lost staff resources. 

However, state agency officials in four states we interviewed told us 
that they have difficulty obtaining information on chains that operate 
homes in other states, even though many nursing home companies operate 
in multiple states. As a result, state agencies, which with CMS share 
responsibility for nursing home oversight, have limited information 
about the poor performance of nursing home owners in other states, 
including the owners who currently are applying to operate in their 
state.[Footnote 62] With limited access to ownership data, many of the 
state officials we interviewed told us that they learn about owners of 
poorly performing nursing homes informally.[Footnote 63] In a recent 
case investigated for quality and fraud issues by the Connecticut 
Attorney General's Office, officials were only able to learn about a 
nursing home chain's complex ownership structure, including the 44 
related entities that owned the nursing homes, through bankruptcy 
documents. Connecticut state officials noted that they rely on 
gathering information on out-of-state owners from other states on a 
case-by-case basis. 

State agencies we spoke with expressed strong interest in routine 
access to national nursing home ownership data, such as PECOS, as a 
means for more effective oversight of entities controlling nursing 
homes.[Footnote 64] Officials in one state told us access to PECOS 
would enable them to check the ownership information nursing homes 
submit to the state and compare it to what homes are reporting to CMS. 
CMS officials confirmed that states do not have access to the PECOS 
database and, in fact, it was not developed with the objective of 
providing access to external users, such as states or other offices 
within MIS.[Footnote 65] According to CMS officials, states may 
request specific information in PECOS, such as a list of all nursing 
homes owned by a specific individual or entity, but no such requests 
have been made. As noted earlier, the agency has not developed any 
standardized reports on nursing home ownership that it could easily 
share with states.[Footnote 66] Rather, it would respond to each 
request on a case-by-case basis.[Footnote 67] Recognizing the growing 
interest in PECOS data, CMS is considering whether and how it could 
provide access to external parties, such as states. The official 
responsible for this effort said that it is a longterm project.
Several state officials and a nursing home patient advocate told us 
that nursing home ownership information should be readily available to 
the public. The Patient Protection and Affordable Care Act requires 
that ownership and control information be publicly available no later 
than 1 year after the promulgation of final regulations that implement 
expanded collection of such data. Even prior to this act, federal law 
required CMS to make ownership information available to the public 
upon request.[Footnote 68] According to a CMS official, the agency has 
responded to public requests for nursing home ownership information by 
providing copies of individual Medicare enrollment applications after 
redacting any privacy protected information, such as owners' Social 
Security numbers.[Footnote 69] CMS has received some extensive 
requests for information stored in PECOS, but when individuals were 
told the cost of redacting privacy protected information, the requests 
were withdrawn. 

We found that five of the six state agencies we interviewed—
California, Illinois, Maryland, New Jersey, and Texas—have posted or 
are in the process of posting some of the statewide nursing home 
ownership information they collect on publicly available Web sites. 
According to a Maryland official, the state decided to post detailed 
nursing home ownership information on its Web site because it 
concluded that access to ownership information was a "consumer issue" 
and that residents and their families had a right to know who owns any 
given nursing home. New Jersey survey agency officials told us that 
the state had enacted a law in 2007 giving the public access to state-
collected nursing home ownership information because a nursing home 
resident's family wanted to move a relative to a nursing home with a 
different owner but found that they could not identify which nursing 
homes were owned by which owners. 

Conclusions: 

Consistent with the name private investment, the information on PI 
nursing home acquisitions is private—limited to what such firms choose 
to release. We found that the identification of PI firm nursing home 
acquisitions was difficult and that CMS's PECOS database had 
limitations in identifying and helping users to decipher PI nursing 
home ownership structures. The ability of PECOS to shed any further 
light on these acquisitions is undermined by several factors, 
including the increasing complexity of nursing home ownership 
structures since the development of requirements for reporting such 
data, CMS's focus on populating PECOS with limited oversight of the 
reporting and recording of the data, and limited use of the data. 
State experiences with the collection, use, and public disclosure of 
ownership data provide insights on how BHS could address these 
limiting factors. Moreover, our findings can help inform BHS as it 
develops regulations to implement the Patient Protection and 
Affordable Care Act and refines the Medicare enrollment application and 
PECOS to reflect the expanded reporting requirements on nursing home 
ownership and control contained in the act. 

PECOS Database: 

Because limited information is available about companies that are not 
publicly traded, the acquisition of nursing homes by PI firms 
underscores the need for complete, accurate, and clear ownership and 
chain affiliation data. PECOS does not include information on the 
business type of organizational owners that would identify them as PI 
firms, making our research and the cooperation of PI firms essential 
to examining PI ownership and chain affiliation in the database. When 
we reviewed the data in PECOS for homes we knew were PI-owned, we 
noted the following limitations: 

* Numerous owners were reported for each home with no information on 
the hierarchy of, or relationship among, the owners. However, some 
states that collect ownership data do attempt to capture the hierarchy 
of the ownership structure. 

* Three of the six PI firms we reviewed were not listed in PECOS as 
the owners of any of the nursing homes they acquired and an entity 
readily identifiable with a fourth firm was listed as the owner for 
less than 20 percent of its homes. We were not able to ascertain 
whether or not all of these PI firms were required to be reported. 
However, the goal of collecting ownership and control information is 
undermined if all entities with reportable ownership or control 
interests are not reported, including the ultimate owners. 

* Information on individual ownership is collected separately from, 
and is not linked to, organizational owners. Further, providers are 
not required to report individuals who are partners, officers, or 
directors above the nursing home provider levels, such as members of 
the board of directors who provide strategic direction to a nursing 
home chain. 

* Homes belonging to the same chain were not always associated with 
the same chain home office, requiring us to link homes through the use 
of other data elements, such as the address of the chain home office 
or the chain home administrator. 

In addition, confusion about what was required to be reported on the 
Medicare enrollment application and CMS contractor performance 
contributed to problems with PECOS data. Although it may be difficult 
for CMS's contractors to recognize when the information reported by 
providers is incomplete or inaccurate, oversight of these contractors 
with respect to their verification of ownership data is limited. The 
importance of CMS oversight is demonstrated by the fact that PI firms 
told us that (1) some of the data we found missing on the application 
had been submitted to CMS's contractor or (2) data were missing 
because they were following their contractor's instructions. 

Provisions in the recently passed Patient Protection and Affordable 
Care Act may provide an opportunity to address some of the problems we 
found. For example, the act requires that the organizational structure 
of what are termed "additional disclosable parties" be provided along 
with descriptions of the relationships of these parties to the nursing 
home and to each other.[Footnote 70] More detailed information on 
persons and entities with an ownership or control interest would 
clarify the relationships among some of the organizational owners 
listed in PECOS. The act also requires providers to identify members 
of the governing body of the nursing home. 

Use of PECOS Data: 

Only CMS's Division of Provider and Supplier Enrollment has routine 
access to PECOS and this division has been largely focused on 
populating the database, which was about 81 percent complete as of 
July 2010. Although this division has made limited use of nursing home 
ownership data, CMS recognizes that other groups within the agency may 
have an interest in such data and has started a workgroup to study the 
issue. In addition, state survey agencies have expressed interest in 
more routine access to nationwide ownership data to improve nursing 
home oversight For example, one state official told us that the state 
had made state-collected nursing home ownership data publicly 
available because consumers had a right to know if the owner of a home 
operated other nursing homes. Currently, CMS addresses both state and 
public requests for nursing home ownership data on a case-by-case 
basis and is unable to give states direct access to the database. 
[Footnote 71] CMS is aware of state interest in PECOS data and is 
beginning to think about how to provide such access. Although the 
utility to states and consumers of the ownership information in PECOS 
in its present state is debatable because the information is sometimes 
hard to decipher, the implementation of the Patient Protection and 
Affordable Care Act provides CMS with an opportunity to collect 
meaningful ownership information and to make it available in an 
intelligible way. 

Recommendations for Executive Action: 

We are making 11 recommendations to the Secretary of BHS and the 
Administrator of CMS. 

As the Secretary of HHS develops regulations to implement the expanded 
nursing home ownership reporting and disclosure requirements contained 
in the Patient Protection and Affordable Care Act, we recommend that 
the Secretary, given the complex arrangements under which nursing 
homes can be acquired and operated, consider requiring the reporting 
of the following five types of information: 

* the organizational structure and the relationships to the facility 
and to one another of all persons or entities with direct or indirect 
ownership or control interests in the provider (as defined in the 
act), such that the hierarchy of all intermediate persons and entities 
from the provider level up to the chain and the ultimate owner is 
described; 

* for entities reported as having ownership or control interests, 
specify whether or not the entities have an operational role; for 
example, special purpose entities created solely for the purpose of 
acquiring the nursing home but having no operational role should be 
identified as such; 

* the percentage ownership interest in the provider for all entities 
and individuals who have an ownership or control interest (as defined 
in the act); 

* the names and titles of the members of the chains' governing body; 
and; 

* the organizational affiliation of individuals with an ownership or 
control interest (as defined in the act). 

To ensure proper administration of current reporting requirements, we 
recommend that the Administrator of CMS issue guidance on the 
circumstances under which the holder of a security interest in a 
provider may be considered to have a reportable interest. 

To ensure that all providers that belong to the same nursing home 
chain can be readily identified, we recommend that the Administrator 
of CMS require each provider to report the identity of other nursing 
homes that are part of the same chain. 

To improve the usability and accuracy of the ownership and control 
information collected and stored in PECOS, we recommend that the 
Administrator of CMS take the following three actions: 

* Expand the scope of CMS's existing workgroup intended to make PECOS 
data available within the agency by developing a comprehensive 
strategy for disseminating PECOS data to BHS, states, and the public; 
for example, CMS could develop and make available standardized reports 
on nationwide ownership data and could include ownership information 
on its Nursing Home Compare Web site. 

* Examine state systems to identify best practices for the collection 
and public dissemination of nursing home ownership and chain 
information, including ways in which states make the hierarchy among 
owners more apparent. 

* More closely monitor the activities of CMS contractors that review 
the ownership and control information submitted by providers that 
participate in Medicare and Medicaid to help ensure its accuracy and 
completeness. 

To help ensure that the requirements for the collection of ownership 
and control information from nursing home providers that participate 
in Medicare and Medicaid keep pace with evolving ownership structures, 
we recommend that the Administrator of CMS periodically review the 
requirements related to reporting on the agency's provider enrollment 
form to ensure that it promotes accurate and complete reporting of 
nursing home ownership information consistent with the statute. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to BHS for comment and also invited 
the nine PI firms that cooperated with our study to review the draft. 
In its written comments, BHS concurred with all 11 of our 
recommendations and provided CMS's response to those recommendations. 
BHS's comments are reproduced in appendix II. In addition, five of the 
nine PI firms reviewed the draft and provided oral comments. Officials 
from some of the firms noted that our report offered a fair and 
balanced depiction of the subject matter, but some PI firm officials 
also expressed concerns about how PI firms were portrayed. Two of the 
six state survey agencies we interviewed provided technical comments 
on relevant excerpts of the draft report, which we incorporated as 
appropriate. 

CMS: 

CMS concurred with all of our recommendations and said that it planned
to implement them in various ways, including through the development 
of new regulations or revisions to the Medicare enrollment process. 
Specifically, CMS said that it would: 

* consider mandating the reporting of the five types of information we 
specified in our recommendations, such as the names and titles of the 
members of the nursing home chain's governing body, when developing 
regulations to implement the expanded ownership disclosure and 
reporting requirements in the Patient Protection and Affordable Care 
Act; 

* require reporting of the holders of a security interest in a 
provider and identifying all the homes belonging to the same chain 
through revisions to the Medicare enrollment application and 
instructions; 

* develop a strategy for examining the wider dissemination of 
ownership information, as well as an action plan for contacting states 
about their collection and dissemination of ownership and chain 
information; 

* conduct additional monitoring of CMS contractors to include, but not 
be limited to, evaluating the ownership and control information 
submitted with enrollment applications as part of annual reviews of 
the enrollment process, other focused reviews of provider enrollment, 
and general contract oversight; and; 

* periodically review the Medicare enrollment application to ensure it 
is updated to reflect complete reporting of nursing home ownership 
information consistent with the statute. 

CMS also provided several technical comments, which we incorporated as 
appropriate. 

PI Firms: 

Officials from two of the five PI firms that provided oral comments 
said our report provided a fair and balanced depiction of PI ownership 
of nursing homes. Officials from one firm said the report described 
real-estate-only acquisitions well and officials from the other PI 
firm considered the report to be a thorough and comprehensive 
treatment of the subject matter. In general, PI firm officials 
commented on our portrayal of the firms, the data in PECOS on the 
nursing homes they owned, and expanded nursing home ownership 
reporting requirements in the Patient Protection and Affordable Care 
Act. 

Portrayal of PI firms. Officials from some PI firms expressed concerns 
that our report implied that PI ownership of nursing homes was somehow 
unique and therefore warranted special scrutiny. Officials from one 
firm stated that there was little difference between nursing homes 
owned by PI firms and those owned by public shareholders, beyond SEC 
reporting requirements for the latter. For example, officials from one 
firm noted that all homes, regardless of ownership, are subject to 
state licensure and disclosure requirements and routine surveys to 
ensure compliance with federal quality standards. Officials 
representing two firms also commented that the use of complex 
ownership structures is not unique to companies owned by PI firms. One 
official made the point that the nursing home's ownership structure 
prior to its acquisition by a PI firm was in many ways just as complex 
and not at all unusual for a public company. Other officials noted 
that multiple layers of ownership exist across the corporate world and 
are not particular to the nursing home industry or to health care. 
Similarly, officials at one firm wanted us to note that PECOS 
ownership data and chain affiliation are hard to decipher for all 
nursing homes, not just those owned by PI firms. Because our study 
focused on the ownership of nursing homes by PI firms and how PI 
nursing home ownership was captured in PECOS, we did not examine how 
PECOS captures the ownership of nursing homes by other entities. As a 
result, our conclusions were limited to the complexity of PI ownership 
structures and the limited ability of PECOS to help to clarify the 
relationships among the entities and individuals reported as having an 
ownership or control interest. 

PI firms' PECOS data. Officials representing two PI firms were 
concerned that our report implied that the ownership information in 
PECOS was not clear or was problematic because providers did not 
submit necessary information to CMS. Officials at one firm also 
thought the tone of the report suggested that PI firms were trying to 
hide information and stressed that they had disclosed all required 
information and were very forthcoming with information. Officials 
representing two PI firms also said that there was no way for firms to 
see whether the information they provided on the Medicare enrollment 
application was correctly entered into PECOS. Nursing home providers 
now have the option of using CMS's internet-based PECOS to submit, 
change, and view their enrollment information online, but we did not 
review this system, which was implemented for nursing homes in April 
2009. 

Our finding that the ownership data in PECOS were hard to decipher 
focused in large part on shortcomings in the collection of data for 
PECOS, such as the lack of information on how entities and individuals 
with reported ownership or control interests are related. We also 
found that in one case complete ownership information was not reported 
for homes in one PI-owned chain in part due to incorrect advice 
provided to a PI firm by a CMS contractor. In another instance, PI 
ownership was not reported because it may not have been clear that 
entities with a security interest should be reported. Finally, chain 
home office information, which is required to be reported was missing 
for most of the homes in the chain acquired by one PI firm. An 
official with the nursing home chain said that the company had 
separately provided information on the homes in the
chain it acquired to another office in CMS but that this information 
had not been integrated into PECOS. The official commented in general 
about problems with information being siloed at CMS in separate data 
systems. 

Patient Protection and Affordable Care Act. Officials representing two 
of the PI firms noted their support for the expanded ownership 
reporting requirements included in the Patient Protection and 
Affordable Care Act, but officials at these firms also expressed 
caution on which entities or individuals should be subject to 
disclosure and how detailed reportable ownership data should be. For 
example, officials with one firm told us that decision makers, but not 
necessarily all owners or investors, should be reportable, and in 
particular, they did not believe that owners they considered passive 
investors, such as public pension funds, should be reported. An 
official from this PI firm suggested that what should matter from a 
policy perspective is the entity responsible for the care provided 
(the nursing home company) and the entity that controls it (the 
private investment firm). An official with another PI firm stressed 
the importance of a reporting system that makes clear which entities 
control or play a role in decision-making, and that even a system that 
displays a hierarchy and ownership percentages may not adequately 
reflect this role. The official stated that a designation such as 
managing partner denoted an entity with decision-making 
responsibility. We recommended that BHS consider requiring providers 
to identify whether reported ownership entities have an actual 
operational role, which we believe would help address this issue. 

An official representing another PI firm expressed a different view 
and said that CMS needs to capture more detailed ownership information 
similar to what some states collect so that it has complete 
information on all ownership layers. This comment is consistent with our
recommendation that CMS examine states systems to identify best 
practices for the collection of nursing home ownership information. 

The PI firms also provided technical comments, which we incorporated 
as appropriate. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
Secretary of Health and Human Services, the Administrator of the 
Centers for Medicare & Medicaid Services, and appropriate 
congressional committees. In addition, the report will be available at 
no charge on the GAO Web site at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-7114 or at dickenj@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made key contributions 
to this report are listed in appendix III. 

Signed by: 

John E. Dicken: 
Director, Health Care: 

[End of section] 

Appendix I: Summary of Six PI Firms' Responses about Their Interest and
Involvement in Nursing Homes: 

Most of the Six PI Firms That Responded to Questions Described Similar 
Investment Rationales and Were More Involved in Operations after 
Acquiring a Chain Than after Acquiring Real Estate Only: 

Of the six firms that responded to our questions, most described 
similar investment rationales.[Footnote 72] While leasing arrangements 
with nursing home operators may have the potential to influence the 
operations of the homes, firms that acquired a chain reported that 
they were more involved in nursing home operations than firms that 
acquired real estate only. Table 4 summarizes PI firm responses on 
such issues as the time frames for closing out their investments, or 
exit strategy, and being on the board of directors of the nursing home 
chain. 

Table 4: Summary of Responses of Six of the Top 10 Nursing Home Chain 
and Real Estate Acquirers as of Mid-2009: 
				 					
PI firm: A; 
Acquired a chain: Yes; 
Acquired real estate only: No; 
Exit strategy (in years): 3 to 9; 
Focus on demographic demand: Yes; 
Split operations and real estate: Yes[A]; 
On the board of directors of chain: Yes; 
Kept the same chain executives: Yes; 
Monitor quality of care: Yes; 
Collect rent partially as a percentage of net income: N/A. 

PI firm: B; 
Acquired a chain: Yes; 
Acquired real estate only: No; 
Exit strategy (in years): response not provided; 
Focus on demographic demand: Yes; 
Split operations and real estate: response not provided; 
On the board of directors of chain: Yes; 
Kept the same chain executives: Yes; 
Monitor quality of care: response not provided; 
Collect rent partially as a percentage of net income: N/A. 

PI firm: C; 
Acquired a chain: Yes; 
Acquired real estate only: No; 
Exit strategy (in years): At least 20; 
Focus on demographic demand: Yes; 
Split operations and real estate: Yes[A]; 
On the board of directors of chain: Yes; 
Kept the same chain executives: No; 
Monitor quality of care: Yes; 
Collect rent partially as a percentage of net income: N/A. 

PI firm: D; 
Acquired a chain: Yes; 
Acquired real estate only: Yes; 
Exit strategy (in years): response not provided; 
Focus on demographic demand: Yes; 
Split operations and real estate: Yes[B]; 
On the board of directors of chain: Yes[C]; 
Kept the same chain executives: Yes[C]; 
Monitor quality of care: Yes; 
Collect rent partially as a percentage of net income: Yes[B]. 

PI firm: E; 
Acquired a chain: No; 
Acquired real estate only: Yes; 
Exit strategy (in years): 3 to 5; 
Focus on demographic demand: Yes; 
Split operations and real estate: response not provided; 
On the board of directors of chain: No; 
Kept the same chain executives: N/A; 
Monitor quality of care: Yes; 
Collect rent partially as a percentage of net income: Yes. 

PI firm: F; 
Acquired a chain: No; 
Acquired real estate only: Yes; 
Exit strategy (in years): None; 
Focus on demographic demand: No; 
Split operations and real estate: response not provided; 
On the board of directors of chain: No; 
Kept the same chain executives: N/A; 
Monitor quality of care: No; 
Collect rent partially as a percentage of net income: No. 

Source: GAO summary of six private investment firm responses. 

/A = Not applicable. 

[A] Separated operations and real estate into separate companies but 
kept them under common ownership. 

[B] Only applicable for the firm's real estate acquisitions. 

[C] Only applicable for the firm's chain acquisition. 

[End of table] 

PI Firms that Acquired a Chain: 

Investment Rationale. Four of the six PI firms (firms A, B, C, and D) 
acquired nursing home chains, and officials at all four described 
increased demand for long-term care due to an aging population as 
their attraction to those investments. To help meet demographic 
demand, officials at firms A and D said they sought high-quality 
chains that focused on providing post-acute care to high-acuity 
patients (those with clinically complex problems) and indicated that 
these chains had top notch management already in place.[Footnote 73] 
An official at firm C said the firm was attracted by the improvements 
it could make to the nursing home chain. 

Officials at all four PI firms characterized their investments as 
"long term," but the number of years they planned to hold the 
investments differed.[Footnote 74] Officials at firm A said they 
planned to hold their investment 3 to 9 years, during which time the 
firm intended to expand the number of patients the chain served to 
meet the long-term growth potential of the industry. An official at 
firm C indicated that it was likely the firm would maintain its 
investment in the chain for at least 20 years. Officials at firms B 
and D did not specify a range or number of years. 

Structural Changes. Officials at firms A and C said they divided the 
operations and the real estate into separate companies for tax or 
financing purposes but kept those companies under common ownership. An 
official at firm C explained that the creation of separate operating 
and real estate companies was designed to attract investors who wanted 
exposure to only one side of the nursing home company. In hindsight, 
however, the official said that the separate entities created for the 
acquisition were not worth the legal costs and reporting requirements 
and that the firm planned on collapsing the operating and real estate 
companies to simplify the organizational structure. Officials at firms 
B and D did not mention any changes to the organizational structure of 
the chains they acquired. 

Officials at firms A and C explained the benefits from having 
operations and real estate under the same chain ownership. An official 
at firm A stated that it was unlikely that the real estate could be 
converted to another use and that therefore it made sense for the 
nursing home operator, who is licensed to run the home, to own the 
real estate. An official noted that an operating company that does not 
own its real estate is unable to use the property as collateral for a 
loan. Finally, officials at this PI firm told us that the chain's 
common ownership structure should reassure patients that the chain 
would take responsibility for any problems that occur.[Footnote 75] An 
official at firm C said that the chain leases some of its nursing 
homes from unaffiliated real estate owners but that it planned to 
cease operations at those locations if it was unable to purchase the 
real estate. Another firm official noted that tension over 
responsibility for improvements can arise in any industry with 
unaffiliated operating and real estate companies—leaving the operator 
with less incentive to make those improvements. One real-estate-only 
acquirer strongly disagreed with this statement and noted that a 
landlord with a triple net lease has a great incentive for ensuring 
the real estate is appropriately maintained. This firm said such 
leases clearly state the responsibilities of the real estate owner and 
the operator with respect to facility improvements and said that 
disagreements have been few and limited. 

Involvement in Nursing Home Operations. Officials at all four PI firms 
that acquired a chain said that they held seats on the chains' boards 
of directors. In general, they characterized their involvement as 
related to the strategic direction of the chain and indicated that 
they are not involved in day-to-day operations. They noted that the 
updates they receive at board meetings help to guide their decisions 
for the strategic direction of the chain. 

Strategic direction. Officials at all four PI firms described the 
chain's executive management as the ultimate decision maker for the 
chain, and officials at firms A, B, and D indicated their involvement 
in nursing home operations primarily ensured that the chain continued 
the objectives it already had set for itself. Officials at firm A said 
they had helped the chain implement an ongoing transformation from a 
focus on custodial care to becoming primarily a provider of postacute 
care and rehabilitative services to higher acuity patients. This 
official said that the board of directors ensured that the staff at 
the facilities could meet this goal. Although the nursing home chain 
already had this goal in place as a publicly traded company, officials 
at the PI firm said that they helped to achieve this goal by allowing 
the chain to make investments more quickly. They also emphasized that 
the chain does not turn away residents to meet its strategic objective. 

Management changes. Officials at firms A, B, and D said they kept the 
same executive management after they acquired the chain because the 
chain was already well managed. An official who worked at the chain 
prior to firm A's acquisition told us that the firm helped hire more 
regional office managers and more managers overall but also felt that 
minimal organizational changes had occurred after acquisition by the 
PI firm. In contrast, an official at firm C believed that the chain 
the firm acquired had quality of care challenges and later hired a 
physician as chief executive officer.[Footnote 76] An official at this 
firm indicated that the firm's goal was to help transform the nursing 
home industry and, as a result, the firm recruited managers that held 
the same values. 

Quality-of-care monitoring. Officials at two firms gave specific 
examples of how they oversee quality of care. An official at firm C 
told us that the firm helped its chain introduce best practices and 
standardized training to nursing home staff. According to firm 
officials, the firm directed capital to, among other things, hire 
directors of clinical education, train facility staff to focus on the 
awareness of each patient's individual needs, and reduce staff 
turnover. One senior official at this chain said that all the 
personnel, from the caregivers to management, have gone through a 
significant cultural change since the PI firm had acquired it. An 
official at the firm said that if the firm had not purchased this 
particular chain, a different PI firm would have taken over and he 
believes that the quality of care would have suffered.[Footnote 77] 
However, an official of the firm emphasized that each nursing home 
within the chain made more decisions about the care provided inside 
the home than did the chain's board of directors. 

Officials at another firm explained that they receive reports on 
quality of care—including CMS's 5-star ratings—to help guide 
management decisions. The firm helped create an Independent Quality 
Committee to provide the board with independent expert guidance on 
reading and assessing quality of care data. After examining the data, 
the board discusses how to address problems. An official with the 
chain said that it can take underperforming homes and improve them by 
sharing resources across the chain. 

Capital improvements. Officials at all four PI firms indicated that 
they were directly involved in capital improvements or expansion plans 
for the chains they acquired. Firm A said it helped the chain to 
undertake investments that furthered the chain's long-term expansion 
strategy. This chain has sought approval from state governments to 
build several new facilities. Firm B said it mainly helps with 
decisions about the nursing homes' capital structure and the capacity 
to fund the development of new homes. 

PI Firms That Made Real-Estate-Only Acquisitions: 

Investment Rationale. Three of the six PI firms (firms D, E, and F) 
made real-estate-only acquisitions. Officials of firms D and E 
described increased demand in long-term care due to an aging 
population as a factor that attracted them to those investments. For 
example, officials at firm D said the business and organizational 
models they developed brought needed investment into the nursing home 
industry after a decline in the late 1990s. Similarly, officials at 
firm E said that no new nursing homes had been built in recent years 
and that the demand for senior housing will exceed the available 
supply. In contrast, an official of firm F described the firm's 
investments in nursing home real estate as an opportunity to acquire 
additional real estate; that is, they did not view their nursing home 
real estate acquisitions any differently than their acquisitions of 
commercial or residential real estate. 

These three firms had different exit strategies for their nursing home 
real estate investments. Although officials at firm D described one of 
their nursing home real estate investments as "long term," they did 
not specify a time frame. However, they have sold other nursing home 
real estate investments in 1 to 5 years from the initial investment. 
Officials at firm E said they acquired nursing home real estate with 
the goal of selling the investments at a profit 3 to 5 years later. 
After declining growth in real estate value, the firm sold one 
portfolio of such investments about 2 years after the initial 
acquisition and had planned on selling its other portfolios.[Footnote 
78] 

In contrast, an official at firm F said the firm's acquisitions were a 
mechanism to collect rent and they had no intention of selling. 

Involvement in Nursing Home Operations. The three PI firms that made 
real-estate-only acquisitions had no representation on the boards of 
the operating companies to which they leased real estate. Through 
their lease arrangements with nursing home operators, however, they 
may have the potential to influence the operations of the homes. 

Lease arrangements. All three PI firms lease the real estate to 
nursing home operators under "triple net" agreements.[Footnote 79] 
Officials at firm E told us that triple net leases are the industry 
standard for nursing homes. Under these agreements, in addition to 
rent, the operator agrees to pay all real estate taxes, property 
insurance, and maintenance on the property (including capital costs). 
These officials said that because the average age of their facilities 
was 30 years, they required the operators to make an annual per-bed 
deposit for maintenance. This deposit was refunded when the nursing 
home operator submitted evidence (paid invoices) that it had 
undertaken maintenance. 

Firms D and E had leases with the nursing home operators that 
calculated a base rent plus rent as a percentage of the operator's 
adjusted net income or excess cash flow—ranging from 35 to 50 percent. 
[Footnote 80] Officials at firm E said that they examined whether an 
operator could meet the terms of the lease before they made an initial 
investment in the property. According to officials at this PI firm, 
the major variable that influenced a nursing home operator was not the 
operator's ability to pay debts and rent, but rather the level of 
reimbursement received for resident care. However, officials at a PI 
firm that purchased a nursing home chain told us that such leasing 
arrangements can have negative consequences. They explained that the 
real estate owner shares profits with minimal risk, but when revenues 
decline, nursing home operators are more likely to cut staff to pay 
the base rent and to maintain a level of profitability. 

Separation of real estate from operations. Officials at firms D and E 
told us that the separation of real estate and operations under 
unaffiliated companies benefited the operator by allowing greater 
access to capital for the nursing home. Officials at firm D said that 
they purchased nursing homes and separated the entities that owned the 
real estate from those that operated the facilities. They said they 
created this structure to attract financial lenders and investors back 
to the nursing home industry and reduce the risk associated with the 
closure of facilities because of high insurance premiums resulting 
from litigation. According to officials at this firm, this structure 
still ensured that the legal process could reach an accountable party 
to help address potential quality-of-care problems. 

Quality-of-care monitoring. While officials at all three firms 
reported that they do not tell the nursing home operators to whom they 
lease how to run their businesses, officials at firms D and E 
monitored the operators' quality of care. Officials at both firms said 
that good quality of care resulted in good financial outcomes. They 
indicated that they would consider terminating a lease if poor or 
declining care persisted, but officials at neither firm said they had 
encountered such a situation. Officials at firm D said their 
involvement at the operating level is typically limited to oversight 
of their tenants through an affiliated asset management company. The 
asset managers are expected to monitor compliance with the lease, 
perform financial reviews and analyses, conduct on-site inspections of 
each facility's physical plant, and continuously review each 
facility's clinical performance. Officials at firm E said that the 
terms of their leases required nursing home operators to have plans of 
correction that addressed quality-of-care problems.[Footnote 81] 
Officials at this firm told us that they have clinical staff to help 
them interpret state survey reports of the nursing homes to which they 
lease real estate. If clinical care declined below a certain point at 
a home, the officials said that they would increase their monitoring. 
While these officials said they would ask the home's operator how it 
planned to address resident care problems, they emphasized that they 
would not tell the operator what to do.[Footnote 82] 

In the more than 5 years they had owned nursing home real estate, an 
official at firm F told us that the firm had not monitored the quality 
of care provided by the operators to whom it leased facilities. 
However, the official said the firm would like to start monitoring 
operations, because—unlike their other commercial investments—they do 
not manage the operations of their nursing homes. Should an operator 
lose its state license to operate a nursing home, the official of the 
firm told us that their investment would be at risk, because it can be 
difficult to identify a new nursing home operator or to convert the 
property to another use. Although the official at this firm said the 
firm would intervene before an operator lost its license, the firm did 
not consider monitoring quality of care until approached by an 
independent third party that said it could help interpret operators' 
state survey results. 

[End of section] 

Appendix II: Comments from the Department of Health and Human Services: 

Department Of Health And Human Services: 
Office Of The Secretary: 
Assistant Secretary for Legislation: 
Washington, DC 20201: 

September 15, 2010: 

John Dicken: 
Director, Health Care: 
U.S. Government Accountability Office: 
441 G Street N.W. 
Washington, DC 20548: 

Dear Mr. Dicken: 

Attached are comments on the U.S. Government Accountability Office's 
(GAO) report entitled: "Nursing Homes: Complexity of Private 
Investment Purchases Demonstrates Need for CMS to Improve the 
Usability and Completeness of Ownership Data" (GA0-10-710). 

The Department appreciates the opportunity to review this report 
before its publication. 

Sincerely, 

Signed by: 

Jim R. Esquea: 
Assistant Secretary for Legislation: 

Attachment: 

[End of letter] 

General Comments Of The Department Of Health And Human Services (HHS) 
On The Government Accountability Office's (GAO) Draft Report Entitled, 
"Nursing Homes: Complexity Of Private Investment Purchases 
Demonstrates Need For CMS To Improve The Usability And Completeness Of 
Ownership Data" (GAO-10-710): 

The Department appreciates the opportunity to review and comment on 
the subject GAO Draft Report. GAO's study focused on private 
investment (PI) firm ownership of nursing homes, Center for Medicare & 
Medicaid Services' (CMS) capacity to identify nursing home owners, and 
the impact of PI ownership on the quality of care provided. During 
this study, the GAO: 

* Identified PI ownership using a proprietary database, and analyzed 
information from six PI firms about their interest and involvement in 
nursing homes. 

* Reviewed data on selected PI-owned nursing home chains from CMS's 
Provider Enrollment, Chain and Ownership System (PECOS). 

* Discussed ownership data with officials from the United States 
Department of Health & Human Services (DHHS), CMS, and six states that 
also collect ownership data on nursing homes. 

In its report, the GAO made several recommendations to the Secretary 
of HHS and the Administrator of CMS. CMS responses are below. 

GAO Recommendation: 

In developing regulations to implement the expanded nursing home 
ownership reporting and disclosure requirements contained in the 
Affordable Care Act, the Secretary should consider mandating the 
reporting of the following types of information: 

* The organizational structure and the relationships to the facility 
and to one another of all persons or entities with direct or indirect 
ownership or control interests in the provider, such that the 
hierarchy of all intermediate persons and entities from the provider 
level up to the chain and the ultimate owner is described; 

* For entities reported as having ownership or control interests, 
whether the entities have an operational role; 

* The percentage ownership interest in the provider for all entities 
and individuals who have an ownership or control interest; 

* The names and titles of the members of the chains' governing body; 

* The organizational affiliation of individuals with an ownership or 
control interest. 

CMS Response: 

CMS agrees with this recommendation and will consider it when 
developing regulations to implement the expanded ownership and 
disclosure requirements in Affordable Care Act. 

GAO Recommendation: 

The Administrator of CMS should issue guidance on the circumstances 
under which the holder of a security interest in a provider may be 
considered to have a reportable interest. 

CMS Response: 

CMS agrees with this recommendation. CMS anticipates addressing it by 
revising the Medicare enrollment application to: (1) require providers 
to disclose any party that has the security interest referred to in § 
1124(c)(2)(C)(ii), and (2) describe the types of security interests 
that must be reported when initially enrolling into the Medicare 
program or when reporting a change of information. 

GAO Recommendation: 

The Administrator of CMS should require each provider to report the 
identity of other nursing homes that are part of the same chain. 

CMS Response: 

CMS agrees with this recommendation and will incorporate these 
requirements into a future version of the enrollment application and 
corresponding instructions. 

GAO Recommendation: 

The Administrator of CMS should expand the scope of CMS's existing 
workgroup intended to make PECOS data available within the agency by 
developing a comprehensive strategy for disseminating PECOS data to 
HHS, states, and the public. 

CMS Response: 

CMS agrees with this recommendation, and will develop a strategy to 
examine the feasibility of sharing certain information in PECOS with 
other agencies within HHS, the States, and the public. 

GAO Recommendation: 

The Administrator of CMS should examine State systems to identify best 
practices for the collection and public dissemination of nursing home 
ownership and chain information, including ways in which the State 
make the hierarchy among owners more apparent. 

CMS Response: 

CMS agrees with this recommendation. CMS will develop a plan of action 
for contacting States for background information and feedback on their 
collection and public dissemination of nursing home ownership and 
chain information, as well as how to establish the hierarchy among 
owners more apparent. 

GAO Recommendation: 

The Administrator of CMS should more closely monitor the activities of 
CMS contractors that review the ownership and control information 
submitted by providers that participate in Medicare. 

CMS Response: 

CMS will monitor the contractors' performance in this area. This 
additional monitoring may include but will not be limited to 
evaluating ownership and control information submitted with 
applications selected as part of the annual review of the provider 
enrollment process, evaluating ownership and control information as 
part of other focused provider enrollment reviews that may be 
conducted throughout the year, and as part of general contract 
oversight. 

GAO Recommendation: 

The Administrator of CMS should periodically review the requirement 
related to reporting on the agency's provider enrollment form to 
ensure that it promotes accurate and complete reporting of nursing 
home ownership information consistent with the statute. 

CMS Response: 

CMS agrees with this recommendation. CMS will periodically review the 
provider enrollment application to ensure that it is updated to 
reflect accurate and complete reporting of nursing home ownership 
information consistent with the statute. 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

John Dicken, (202) 512-7114 or dickenj@gao.gov. 


Acknowledgments: 

In addition to the contact name above, Walter Ochinko, Assistant 
Director; Jennie Apter; Ramsey Asaly; Joanne Jee; Dan Lee; Linda 
McIver; Luis Serna; Amy Shefrin; and Jessica Smith made key 
contributions to this report. 

[End of section] 

Related GAO Products: 

Poorly Performing Nursing Homes: Special Focus Facilities Are Often 
Improving, but CMS's Program Could Be Strengthened. [hyperlink, 
http://www.gao.gov/products/GAO-10-197]. Washington, D.C.: March 19, 
2010. 

Nursing Homes: Addressing the Factors Underlying Understatement of 
Serious Care Problems Requires Sustained CMS and State Commitment. 
[hyperlink, http://www.gao.gov/products/GAO-10-70]. Washington, D.C.: 
November 24, 2009. 

Nursing Homes: Opportunities Exist to Facilitate the Use of the 
Temporary Management Sanction. [hyperlink, 
http://www.gao.gov/products/GAO-10-37R]. Washington, D.C.: November 
20, 2009. 

Nursing Homes: CMS's Special Focus Facility Methodology Should Better 
Target the Most Poorly Performing Homes, Which Tended to Be Chain 
Affiliated and For-Profit. [hyperlink, 
http://www.gao.gov/products/GAO-09-689]. Washington, D.C.: August 28, 
2009. 

Medicare and Medicaid Participating Facilities: CMS Needs to Reexamine 
Its Approach for Funding State Oversight of Health Care Facilities. 
[hyperlink, http://www.gao.gov/products/GAO-09-64]. Washington, D.C.: 
February 13, 2009. 

Nursing Homes: Federal Monitoring Surveys Demonstrate Continued 
Understatement of Serious Care Problems and CMS Oversight Weaknesses. 
[hyperlink, http://www.gao.gov/products/GAO-08-517]. Washington, D.C.: 
May 9, 2008. 

Nursing Home Reform: Continued Attention Is Needed to Improve Quality 
of Care in Small but Significant Share of Homes. [hyperlink, 
http://www.gao.gov/products/GAO-07-794T]. Washington, D.C.: May 2, 
2007. 

Nursing Homes: Efforts to Strengthen Federal Enforcement Have Not 
Deterred Some Homes from Repeatedly Harming Residents. [hyperlink, 
http://www.gao.gov/products/GAO-07-241]. Washington, D.C.: March 26, 
2007. 

Nursing Homes: Despite Increased Oversight, Challenges Remain in 
Ensuring High-Quality Care and Resident Safety. [hyperlink, 
http://www.gao.gov/products/GAO-06-117]. Washington, D.C.: December 
28, 2005. 

Nursing Home Quality: Prevalence of Serious Problems, While Declining, 
Reinforces Importance of Enhanced Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-03-561]. Washington, D.C.: July 15, 
2003. 

Nursing Homes: Public Reporting of Quality Indicators Has Merit, but 
National Implementation Is Premature. [hyperlink, 
http://www.gao.gov/products/GAO-03-187]. Washington, D.C.: October 31, 
2002. 

Nursing Homes: Federal Efforts to Monitor Resident Assessment Data 
Should Complement State Activities. [hyperlink, 
http://www.gao.gov/products/GAO-02-279]. Washington, D.C.: February 
15, 2002. 

Nursing Homes: Sustained Efforts Are Essential to Realize Potential of 
the Quality Initiatives. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-00-197]. Washington, D.C.: 
September 28, 2000. 

Nursing Home Care: Enhanced HCFA Oversight of State Programs Would 
Better Ensure Quality. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-00-6]. Washington, D.C.: November 
4, 1999.

Nursing Home Oversight: Industry Examples Do Not Demonstrate That 
Regulatory Actions Were Unreasonable. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-99-154R]. Washington, D.C.: 
August 13, 1999. 

Nursing Homes: Proposal to Enhance Oversight of Poorly Performing
Homes Has Merit. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-99-157]. Washington, D.C.: June 
30, 1999. 

Nursing Homes: Complaint Investigation Processes Often Inadequate to 
Protect Residents. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-99-80]. Washington, D.C.: March 
22, 1999. 

Nursing Homes: Additional Steps Needed to Strengthen Enforcement of 
Federal Quality Standards. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-99-46]. Washington, D.C.:
March 18, 1999. 

California Nursing Homes: Care Problems Persist Despite Federal and 
State Oversight. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-98-202]. Washington, D.C.: July 
27, 1998. 

[End of section] 

Footnotes: 

[1] The Securities and Exchange Commission requires publicly traded 
companies to disclose financial and other information to the public. 
According to the Commission, this disclosure provides a common pool of 
knowledge for investors to decide if they want to buy, hold, or sell a 
particular publicly traded security. 

[2] The New York Times investigation compared over 1,200 PI-owned 
nursing homes to national averages in such areas as health and safety 
violations, complaints, and fines. For more information, see Charles 
Duhigg. "At Many Homes, More Profit and Less Nursing," The New York 
Times (Sept. 23, 2007). The article uses the terms private investment 
and private equity; private equity is a subclass of private investment. 

[3] See David Stevenson and David Grabowski, "Private Equity 
Investment and Nursing Home Care: Is it a Big Deal?" Health Affairs, 
vol. 27, no. 5 (2008). 

[4] A provider is an entity responsible for delivering care to 
Medicare and Medicaid beneficiaries, such as an individual nursing 
home, hospital, or home health agency. CMS oversight is directed at 
providers. Medicare is the federal health care program for elderly and 
disabled individuals. Medicaid is the joint federal-state health care 
financing program for certain categories of low-income individuals. 
According to the most recent National Health Expenditure Data, 
combined Medicare and Medicaid payments for nursing home services were 
about $82 billion in 2008, which represented about 59 percent of total 
U.S. nursing home expenditures in 2008. Of this $82 billion, the 
federal share was about $58 billion. 

[5] Dealogic merger and acquisition data have been used in a prior GAO 
report on private investment. See GAO, Private Equity: Recent Growth 
in Leveraged Buyouts Exposed Risks That Warrant Continued Attention, 
[hyperlink, http://www.gao.gov/products/GAO-08-885] (Washington, D.C.: 
Sept. 9, 2008). 

[6] One PI firm did not respond to any of our data requests. 

[7] This enrollment information includes a provider's legal business 
name and licensure information, as well as ownership information and 
chain affiliation. Medicare providers submit this information to CMS 
when they initially enroll in the Medicare program and if there is any 
change in this information subsequent to enrollment. 

[8] The 1,003 nursing homes account for most of the homes in the six 
PI-owned chains. CMS was not able to identify PECOS data for 3 percent 
of the homes using the identifying information we provided. 

[9] One PI firm did not respond to any of our data requests. For three 
other firms, we did not obtain identifying information for the homes 
they owned before we had completed our requests for and assessment of 
PECOS data. 

[10] State survey agencies, under contract with CMS, inspect nursing 
homes that participate in Medicare and Medicaid to help ensure the 
quality of resident care. 

[11] To achieve geographic diversity, we selected CMS's San Francisco, 
Dallas, Chicago, and Atlanta regions. 

[12] We contacted state survey agency officials in all 50 states and 
the District of Columbia to identify states that collect nursing home 
ownership information. We selected six states to interview that 
collected and maintained detailed nursing home ownership information 
in a database or that were actively exploring issues related to 
nursing home ownership. We also selected these six states based on 
geographic diversity. 

[13] See Social Security Act § 1320a-7. 

[14] CMS regulations define a chain as two or more providers under 
common ownership or control. Chain affiliation is self-reported to CMS 
by nursing homes. According to a study conducted for HHS, about half 
of nursing homes are chain-owned. See David Stevenson, David 
Grabowski, and Laurie Coots, Nursing Home Divestiture and Corporate 
Restructuring: Final Report, a special report prepared at the request 
of BHS, Assistant Secretary for Planning and Evaluation, December 2006. 

[15] Certain smaller publicly traded companies, such as those with 
assets of $10 million or less, are not subject to SEC public reporting 
requirements. 

[16] According to officials at a PI firm we spoke with, recent 
tightening of credit markets has made borrowed capital more difficult 
for private investment firms to obtain, and as a result, it has been 
necessary for firms to increase the amount of investment capital 
relative to borrowed capital that they contribute to an acquisition. 

[17] For more information on leveraged buyouts, see GAO-08-885. 

[18] Socia1 Security Act §1124, codified at 42 U.S.C. §1320a-3. 

[19] See Pub. L. No. 111-148, § 6101, 124 Stat. 119, 699. 

[20] Specifically, nursing homes submit either the form CMS-855A or 
may use an Internet-based application to enroll in the Medicare 
program. We did not review the Internet-based application, which was 
implemented for nursing homes and other organizational entities in 
April 2009. 

[21] According to the Medicare enrollment application, deliberate 
omission, misrepresentation, or falsification of any information on 
the form may be punished by criminal, civil, or administrative 
penalties, including but not limited to the denial or revocation of 
Medicare billing privileges, and/or the imposition of fines, civil 
damages, and/or imprisonment. 

[22] State agencies collect ownership information for Medicaid-
participating providers, but this information is not transferred to 
CMS and is not included in PECOS. Nursing homes enrolled in the 
Medicaid program alone (and not jointly enrolled in the Medicare and 
Medicaid programs) accounted for approximately 4 percent of nursing 
homes participating in either program, as of May 2010. 

[23] CMS plans to have all providers submit enrollment information for 
inclusion in PECOS; however, a CMS official we spoke with did not 
specify a completion date. Prior to this decision, PECOS records were 
only created as providers submitted initial enrollment applications, 
revalidation applications, or changes to their enrollment information, 
including changes of ownership. 

[24] See Social Security Act §§ 1819(g)(5)(A)(iii), 919(g)(5)(A)(iii); 
42 CFR § 488.325(a)(8). 

[25] See 66 Fed. Reg. 51961 (October 11, 2001). 

[26] In a reorganization announced in February 2010, the Medicare 
Program Integrity Group within the Office of Financial Management, 
which included the Division of Provider and Supplier Enrollment, now 
reports to the new Center for Program Integrity headed by a Deputy CMS 
Administrator. 

[27] We considered acquisitions in which PI firms acquired at least a 
majority stake in the nursing home. Acquisitions include all transfers 
of operations and/or acquisitions of leasehold interests, which give 
an entity the right to operate on a property. We also included nursing 
homes added to the chains after they were acquired by PI Firms. 

[28] Previously only rough estimates of the extent of PI ownership of 
nursing homes have been reported. See Charles Duhigg, The New York 
Times (Sept. 23, 2007), and David Stevenson and David Grabowski, 
Health Affairs, vol. 27, no. 5 (2008). 

[29] A portion of the 1,876 unique nursing homes acquired by private 
investment from 1998 through 2008 may not be part of the 15,711 
nursing homes that participate in Medicare or Medicaid as of December 
2008. Some nursing homes may have closed or do not currently 
participate in Medicare or Medicaid and others are no longer owned by 
PI firms. 

[30] Three of the top five largest nursing home chains identified in 
the June 2009 issue of Provider magazine were owned by PI firms. The 
magazine's voluntary survey of nursing home providers is one of the 
few available sources for the size of nursing home chains and shows 
rankings based on data reported by the chains. 

[31] The proportion of the real estate owned by the nursing home 
chains acquired by PI firms differed. For example, the nursing home 
chain HCR ManorCare owned the real estate for 98 percent of its homes, 
while the nursing home chain Beverly Enterprises owned the real estate 
for 76 percent of its homes. 

[32] Florida Healthcare Properties did not acquire the real estate for 
any nursing homes. According to Warburg Pincus, their investment 
strategy since 2004 has focused on the ownership of nursing home 
operations. This firm told us that as of 2008 it only owned nursing 
home operations and not real estate. 

[33] Formation Capital also purchased the Tandem Health Care nursing 
home chain but subsequently transferred the nursing home operations to 
a newly formed unrelated third party company. The transfer, in effect, 
made Formation Capital a real estate owner with no ownership in the 
operating company. 

[34] This difference reflects both divestitures and new acquisitions 
of nursing homes by the firms. 

[35] 0ne PI firm (of the six that responded to our questions) acquired 
nursing home chains in some transactions and real estate only in other 
transactions. Accordingly, we discuss this firm's behavior as 
appropriate for that individual acquisition, i.e., we consider it a 
"chain acquirer" when it purchased the chain's operations, which may 
or may not have included the real estate, and a real estate-only 
acquirer when it acquired a chain's real estate holdings but not its 
operations. 

[36] The PI firm said that it was aware that the chain it acquired had 
a Corporate Integrity Agreement with the HHS OIG. This quality-of-care 
Corporate Integrity Agreement, imposed in 2000 and amended in 2004, 
required the nursing home chain to seek outside technical assistance 
to identify changes that would help address quality problems across 
the nursing home chain's facilities. For more information on these 
agreements see GAO, Medicare Fraud and Abuse: DOJ Has Improved 
Oversight of False Claims Act Guidance, [hyperlink, 
http://www.gao.gov/products/GAO-01-506] (Washington, D.C.: Mar. 30, 
2001) and Poorly Performing Nursing Homes: Special Focus Facilities 
Are Often Improving, but CMS's Program Could Be Strengthened, 
[hyperlink, http://www.gao.gov/products/GAO-10-197] (Washington, D.C.: 
Mar. 19, 2010). 

[37] This firm leased some of its nursing homes from unaffiliated real 
estate owners; however, it planned to cease operations at these 
locations unless it could purchase the real estate for these 
properties, according to a firm official. 

[38] These leases are also sometimes referred to as "full net" leases. 
In arrangements we reviewed, the real property for a number of 
different facilities was leased under a single agreement, which was 
referred to as a master lease agreement. Typically, the master lease 
agreement was made with a nursing home company (chain) and each 
individual nursing home was a separate company that subleased the real 
estate from its chain. 

[39] According to officials at one of these PI firms, as of August 
2010, the firm had restructured the master leases in three of its 
portfolios and no longer collects a portion of the rent based on an 
operator's adjusted net income. Instead, the firm collects a base rent 
subject to a built-in annual escalator. This firm cited business 
reasons for restructuring its leases. 

[40] Officials at a PI firm that acquired a nursing home chain told us 
that such leasing arrangements can have negative consequences. They 
explained that the real estate owner shares profits with minimal risk, 
but when revenues decline, nursing home operators are more likely to 
cut staff to pay the base rent and to maintain a level of 
profitability. 

[41] We reviewed PECOS data for nursing homes in the following six PI-
owned nursing home chains: Centennial HealthCare (now known as LaVie 
Care Centers), Genesis HealthCare, Beverly Enterprises (now known as 
Golden Living), HCR ManorCare, Mariner Health Care (now known as 
SavaSeniorCare), and Trilogy Health Services. 

[42] For our analysis, we reviewed PECOS data for 1,003 nursing homes 
in six chains acquired by PI firms. A total of nine PI firms were 
involved in the ownership of these six nursing homes chains. One of 
the chains was acquired by two PI firms, and the real estate for two 
other chains was owned by separate PI firms. 

[43] The Medicare enrollment application asks providers to report 
organizations with ownership and/or managing control and categorize 
them as having either 5 percent or more ownership interest in, a 
partnership interest in, or managing control of the provider. We 
report on entities in the first two categories and refer to them as 
"organizational owners." 

[44] In contrast, information provided to some states indicate the 
percentage ownership by each reported entity. 

[45] One state official noted that complex ownership structures, 
including those with a different limited liability company reported as 
the owner for each facility within the chain, complicate identifying 
who is actually in charge of a home's management and expenditures. The 
official said that the state's reliance on self-reported information 
makes it difficult for state officials to identify the "true decision 
makers." 

[46] An SPE is a legal entity created to fulfill narrow, specific, or 
temporary objectives, primarily to isolate financial risk. An SPE's 
operations are typically limited to the acquisition and financing of 
specific assets or liabilities. 

[47] Although the firm told us that the SPE was disclosed to the 
contractor, it could not explain why it was not listed as an owner for 
all of the chain's homes. 

[48] Actually, the PI firm itself was a newly created entity formed by 
a group of real estate investors specifically for this acquisition. 
Less than 1 year after this acquisition, this same group of investors 
pursued the acquisition of another nursing home chain through another 
entity created specifically for that acquisition, but the chain was 
ultimately sold to another acquirer. 

[49] We also found that no information on organizational owners was 
reported for 19 of the 1,003 homes we examined. 

[50] In general, a security interest is an interest in property, other 
than real estate, which is given as security for a debt or obligation. 
HHS's Office of General Counsel indicated that a holder of a security 
interest in the property of the nursing home of at least 5 percent 
could be considered a person with an ownership or control interest 
that would have to be reported. Among the entities with ownership or 
control interests that are required to be reported under Section 1124 
of the Social Security Act are persons (including entities) who are 
the owner of a whole or part interest in any mortgage, deed of trust, 
note, or other obligation secured (in whole or in part) by the entity 
or any of its property or assets, which whole or part interest is 
equal to or exceeds 5 percent of the total property and assets of the 
provider. This is not explicit on the Medicare enrollment application. 

[51] Pub. L. No. 111-148, § 6101(a), 124 Stat. 699. 

[52] Nursing homes designated as Special Focus Facilities are subject 
to more vigorous oversight and enforcement actions. See GAO, Nursing 
Homes: CMS's Special Focus Facility Methodology Could Better Target 
the Most Poorly Performing Nursing Homes, Which Tended to Be Chain 
Affiliated and For-Profit GAO-09-689 (Washington, D.C.: Aug. 28, 2009). 

[53] Chain information is important because determining if an 
individual nursing home is part of a larger chain may not be obvious, 
as chains often do not affix a "brand name" to their homes. 

[54] Prior to June 2003, information on whether owners of a nursing 
home also owned other Medicare or Medicaid facilities was collected by 
state survey agencies. Each provider was required to provide a list of 
the other facilities with which it was affiliated. 

[55] Officials from some states we contacted indicated that they also 
faced difficulties in verifying self-reported information and 
detecting inaccurate or incomplete submissions. 

[56] In addition, according to a CMS official, at least 15 desk 
reviews, which are more informal and limited in scope, have been 
conducted since 2005. This official said that no formal on-site audits 
of contractors were conducted from 2006 through 2008. Prior to that, 
from 2000 to 2005, the agency conducted 4 to 10 on-site audits each 
year under a different program to evaluate contractor performance. 

[57] For example, contractors must screen all reported owners for any 
adverse actions against them, such as a felony conviction or a 
conviction related to the delivery of an item or service under 
Medicare. 

[58] A CMS official said that in April 2010 the agency implemented a 
new process whereby every individual in PECOS will be checked against 
the HHS OIG's Medicare Exclusion Database on a monthly basis. The 
practice of checking the GSA debarment list only when a Medicare 
enrollment application is submitted will remain the same. 

[59] In May 2008 testimony, the CMS Administrator said that CMS's 
oversight protocols are directed at providers, not the nursing home 
owners. CMS officials have said that the agency's relationship is with 
the individual nursing home and not the parent company. 

[60] An official with a private investment-owned nursing home chain 
stated that they submit more ownership information to certain states 
than CMS because such states were very specific and detailed in their 
application form's reporting requirements, such as requiring reporting 
of the specific percentage of ownership held or reporting of related 
companies. 

[61] At the same time, state officials we interviewed also indicated 
limits on the extent to which they are permitted to engage nursing 
home owners in their efforts to address violations and improve care. 
For example, a state official said that, although informally they may 
view the parent corporate owner as accountable for the homes they 
control, any formal state actions must be against the entity that 
holds the license, "even if that entity is a straw entity." 

[62] Some of the six states we interviewed had regulations allowing 
them to ask nursing homes about their compliance histories in other 
states. 

[63] An official in one state we interviewed reported that the state 
took steps to enhance its ability to obtain ownership information—such 
as by training staff to send back forms until complete, threatening to 
withhold state licensure, or threatening fines until all ownership 
entities are reported—but still faced challenges identifying nursing 
home owners. An official in another state explained that relying on 
self-reported information, particularly for nonpublicly traded 
companies, is a challenge because it requires the nursing home to 
provide accurate and complete information; if the nursing home is not 
forthcoming, it is hard to catch. 

[64] Until 2003, CMS also collected provider ownership information 
separately from the Medicare enrollment form data, using a specific 
ownership and control interest disclosure form that was collected 
annually by state agencies. Use of this form was discontinued in part 
because some of this information was collected on the Medicare 
enrollment application. With the discontinuation of this form, state 
access to federally collected ownership information has been limited. 

[65] The Privacy Act of 1974, 5 U.S.C. Section 552a governs the 
collection, maintenance, use, and dissemination by federal agencies of 
personally identifiable information that is maintained in systems of 
records. The Privacy Act allows federal agencies to disclose such 
information without the individual's consent if the disclosure of that 
information is to be used for a purpose that is compatible with a 
purpose for which the information is collected. The Privacy Act 
requires that agencies give the public notice of those disclosures 
that an agency believes are compatible with the purposes for which the 
information was collected and publish those compatible uses in the 
Federal Register. In a Federal Register notice establishing the 
purposes under which disclosures from the PECOS database could be made 
consistent with the Privacy Act, HHS indicated it would provide 
information from the PECOS database to another federal or state agency 
in order to enable the agency to administer a federal health benefit 
program, or as necessary to enable such agency to fulfill a federal 
legal requirement that implements a federally funded health benefits 
program, or to investigate fraud and abuse in federally funded health 
benefit programs. See 66 Fed. Reg. 51961 (Oct. 11, 2001). 

[66] CMS produces a monthly PECOS extract, which provides a snapshot 
of ownership data on active providers. The extract was developed to 
eliminate the need for CMS staff to fulfill many one-time and ongoing 
data requests. However, it does not include data on providers
that are updating their enrollment information. 

[67] CMS noted that responding to such requests could require 
programming resources and result in the agency charging the state a 
fee for providing the information. CMS has the authority to charge 
fees for services provided in connection with the requests for this 
information. 42 CFR §401.140. 

[68] See Social Security Act §§ 1819(g)(5)(A)(iii), 919(g)(5)(A)(iii); 
42 CFR § 488.325(a)(8). 

[69] CMS had no data on the number of requests for nursing home 
ownership information because until recently the agency's request 
tracking system did not enable searches by topic. 

[70] Additional disclosable parties in the act include persons or 
entities that exercise operational, financial, or managerial control 
over the facility. 

[71] See the Freedom of Information Act, 5 U.S.C. §552; the Privacy 
Act of 1974, 5 U.S.C. § 552a. 

[72] Three of the six firms acquired a nursing home chain, two 
acquired nursing home real estate only, and one acquired both a 
nursing home chain and made separate real estate only acquisitions. We 
describe the latter firm in two categories: (1) its chain acquisition 
is included with those firms that acquired a chain and (2) its real 
estate only acquisitions are included with those firms that acquired 
nursing home real estate only. Three of the nursing home chains we 
discuss were publicly traded prior to their acquisition by PI firms. 

[73] For each period of a covered hospital stay of at least 3 days, 
Medicare covers up to 100 days of posthospital care for persons 
needing skilled nursing or rehabilitation services. 

[74] PI firms that classify themselves as "private equity" typically 
have an exit strategy when they acquire a company. Generally, they 
have 5 years to invest the capital raised from investors and 5 years 
to return the capital and expected profits to its investors. See GAO-
08-885. All four PI firms that acquired a nursing home chain classify 
themselves as private equity. 

[75] In oral comments on a draft of this report, officials of this PI 
firm said that splitting the operations and real estate assets should 
not have a bearing on quality of care. In such scenarios, they said 
that the operating entity is still responsible for quality of care. 
This PI firm may now be considering splitting real estate from 
operations. 

[76] The PI firm said that it was aware that the chain it acquired had 
a corporate integrity agreement with HHS's Office of the Inspector 
General. For more information on these agreements see [hyperlink, 
http://www.gao.gov/products/GAO-01-506] and [hyperlink, 
http://www.gao.gov/products/GAO-10-197]. 

[77] The PI firm said that the nursing homes would have been over-
leveraged with debt and the real estate would have been separated and 
sold to another company. 

[78] PI firms typically use the term portfolio to refer to a set of 
nursing homes acquired as an investment. 

[79] These leases are also sometimes referred to as "full net" leases. 
In arrangements we reviewed, the real property for a number of 
different facilities was leased under a single master lease agreement. 
Typically, the master lease agreement was made with a nursing home 
company (chain), and each individual nursing home was a separate 
company that subleased the real estate from its chain. 

[80] According to officials at one of these PI firms, as of August 
2010, the firm had restructured the master leases in three of its 
portfolios and no longer collects a portion of the rent based on an 
operator's adjusted net income. Instead, the firm collects a base rent 
subject to a built-in annual escalator. This firm cited business 
reasons for restructuring its leases. 

[81] For most deficiencies, a nursing home is required to prepare a 
plan of correction. See GAO, Nursing Homes: CMS's Special Focus 
Facility Methodology Should Better Target the Most Poorly Performing 
Homes, Which Tended to Be Chain Affiliated and For-Profit,
[hyperlink, http://www.gao.gov/products/GAO-09-689] (Washington, D.C.: 
Aug. 28, 2009). 

[82] This PI firm was a nursing home operator's lender in 2006 and, in 
its capacity as lender, provided working capital financing, which 
helped to fund the cost of a temporary manager, a federal sanction, 
when the operator was unable to pay for help to address quality of 
care problems at the facility. As the lender, the PI firm sent several 
staff, including nurses, to the facility and monitored the progress 
toward correcting the care problems. In 2007, the PI firm acquired the 
real estate for this home through foreclosure. For more information on 
temporary management see GAO, Nursing Homes: Opportunities Exist to 
Facilitate the Use of the Temporary Management Sanction, [hyperlink, 
http://www.gao.gov/products/GAO-10-37R] (Washington, D.C.: Nov. 20, 
2009). 

[End of section] 

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